Last week's announcement of rising utility rates for Chinese aluminum smelters led to a momentary increase in stock price for aluminum producer Alcoa (NYSE:AA).
That gain largely evaporated in Thursday's correction sell-off, but there is still an opportunity for long term growth in US metals production as increasing rates for electricity from coal-fired power plants in China has the potential to have a long term negative impact on the price competitiveness of Chinese produced metals. Metal production is a highly automated process where the cost of utilities can rapidly exceed the cost of human labor; making this a rare case where relatively cheap power in the US makes domestic metal production more cost effective than metal production in emerging markets where power grids are significantly less stable, and relatively more expensive on a cost/kw-hour basis.
According to an article by Stuart Burns on the website AgMetalMiner (link provided below) this increase in rates will affect: "aluminum, cement, steel, zinc, ferro-alloy, calcium carbide and sodium hydroxide". This change in rates represents a long term structural change in markets that may result in significant sales increases for US contenders in those markets cited by Burns, and may represent a significant opportunity for long term value investors.
Disclosure: No positions