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rogerlig

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  • Alcoa Just Can't Beat Falling Aluminum Prices [View article]
    Gumby,

    I know AA isn't KALU. But AA might benefit from following KALU's strategy.

    First, a well-timed bankruptcy could be the best thing that ever happened to AA. Lots of debt, and pension obligations vanish. When they reemerge, they do so 'clean', and can reorganize in a way that make more sense.

    Of course, AA shareholders lose all, but they've already lost half. What's another half, to this group? Just the other shoe, dropping.
    Aug 25, 2015. 04:11 PM | Likes Like |Link to Comment
  • Alcoa: Don't Own It [View article]
    AA could still do well, but only after a massive redirection and reorganization.

    They do fabrication (sheet, plate, extrusions, forgings) well, and have a quality product. AA needs to stick to that, but that only.

    If I were in KK's shoes, I'd look long and hard and divesting upstream capacity altogether. Too capital and energy intensive, plus, who needs to be in that business, anyway, with 3.5 - 4.0 MM MT excess primary capacity, until 2020?

    This could actually be a golden opportunity for AA to be a fabricator (only) of someone else's primary aluminum output. I understand that this would take some financial engineering to pull off, but what other option does AA have?
    Aug 25, 2015. 06:35 AM | 3 Likes Like |Link to Comment
  • Do You Seriously Own Alcoa? [View article]
    It's not clear how upstream can be 'massively profitable', without downstream being so, too. Since we're looking at 3.5 - 4MM MT excess primary capacity through 2019, I think I'd want that cost curve not to be a factor (i.e., be out of primary aluminum, altogether).

    Let someone else take the four year surplus problem, buy their primary, fabricate and sell it. At least, AA could have some control over their own market. As it is, they're exposed to more risk than is necessary, from factors they can't control (e.g., China).

    Sometime in the past twenty years, AA must have been 'massively profitable', yet their split adjusted stock price is the same today, as it was twenty years ago (vs. an S&P that's doubled). Something's not right here, and it's not going to be corrected by doing the same thing for the next twenty.

    AA badly needs to be 'out from under' primary. That's a low-tech, power-intensive business, with very little growth likely. Fabrication, on the other hand, is what AA does best. I think they should do (only) that, and do it well.

    I want Gumby to have his $40 AA price. This is the only way he will.
    Aug 24, 2015. 04:20 PM | Likes Like |Link to Comment
  • Alcoa Just Can't Beat Falling Aluminum Prices [View article]
    Gumby,

    You're a patient guy, for sure :-)

    AA is trading at the same price now, as it was twenty years ago. If that's not 'dead money', then someone needs to explain the concept to me.

    You'll need more of that patience, while you wait for upstream to become needed. I'm seeing forecasts of 3.5MM MT excess primary aluminum, through 2019.

    And, AA keeps adding to the surplus :-)
    Aug 24, 2015. 02:17 PM | 1 Like Like |Link to Comment
  • Alcoa Just Can't Beat Falling Aluminum Prices [View article]
    I'm not sure there's a stigma attached to reorganization.

    Let's keep in mind that KALU emerged from bankruptcy with their alumina operations in Louisiana intact, and with four domestic smelters (okay, one was already shut down, near New Orleans). Alumina is very caustic soda intensive, so Kaiser was making that, too.

    KALU, over the course of two years or so, announced that they didn't see any future in upstream, and divested themselves of this capacity.

    If the profit is all in downstream (as it appears to be, for both these firms), why have upstream, at all? Even AA is predicting a surplus of 750M MT over the next year. Goldman says the figure, worldwide, is 3 - 4MM MT, over then next three years.

    If these numbers are even close to realistic, why add to the problem? Why not just buy the (very cheap) aluminum, remelt and recast it, and start from that point?

    Micromill is just a continuous casting process (not all that new of an idea), which will reduce cost, and may improve quality. That part won't be affected, at all.

    Sell the assets, declare a one-time special dividend of a couple of bucks per share (if possible), and be done with it. I think it would be well-received, by anyone familiar with the business.

    I'm not seeing the risk, or the stigma, here.
    Aug 24, 2015. 12:34 PM | 1 Like Like |Link to Comment
  • Alcoa Just Can't Beat Falling Aluminum Prices [View article]
    AA has a lot of alumina and smelting capacity, sells fabricated aluminum, and is *off* 50% YTD. They're seen as an 'aluminum company'.

    KALU sells the same product, fabricated aluminum, but doesn't have the upstream burden of alumina and smelting, and is *up* 20%, YTD. They're seen as a fabrication only, firm.

    The only fundamental difference between these two firms, is that noisome upstream capacity. Does this kind of suggest that AA would be better off without it?

    I seem to be alone on this one, but I'm going to go out on a limb and speculate that if AA simplified its business model, as KALU has done. they'd be up as well.
    Aug 24, 2015. 07:27 AM | Likes Like |Link to Comment
  • Do You Seriously Own Alcoa? [View article]
    Yep, speculators can make money in a contango curved market. That's great for them, but where does it leave AA? Selling at a loss to speculators? How does this help AA?

    I mean, I want everyone to make money, and in some ways they can, but we're discussing AA here. Even producing to inventory in hopes of a higher price later is far less cost effective, and much more risky, than just not producing at all.

    AA needs to be *out* of the primary business entirely. Note that AA, in primary, is *off* 50% YTD, KALU, in the same business, but without the primary capacity, is *up* 20%.

    I'm going to have to conclude that since the final product (fabricated aluminum) is the same for both, the primary capacity is what's causing this huge spread.
    Aug 24, 2015. 07:20 AM | Likes Like |Link to Comment
  • Do You Seriously Own Alcoa? [View article]
    Why don't we take AA at its word, that 750,000 MT of aluminum is being produced, in excess of demand for aluminum? If we do that, and nothing else at all, I think we have to conclude that the price of Al will have to fall.

    Speculation, intermediate storage, even cost of aluminum don't matter, if the world is making more than it's using. It's really not that hard to grasp.
    Aug 23, 2015. 10:43 AM | Likes Like |Link to Comment
  • Do You Seriously Own Alcoa? [View article]
    Regardless of price, the warehoused aluminum will, at some point, some day, enter the market. At that time, it will lower price.

    At this point, it's an overhang, just like a big secondary offering in the market, waiting to happen. Current price won't rise, until this overhang is resolved.

    Under either condition, you can be sure current price won't rise much, if at all. AA will have to deal with current, or lower, aluminum prices, for the foreseeable future.

    So the 'it would all be okay if aluminum price were just $2 per pound' isn't a salient argument. It isn't $2, in fact, it's unlikely to change as long as AA's own prediction of surplus aluminum remains viable.

    AA would be best advised to at least consider exiting this upstream part of their operation. As it stands, they're making matters worse, even for themselves.

    I have to once again, point to KALU. They exited bankruptcy with alumina and smelters intact and operating. Within two years, they were able to divest (or even abandon) this capacity. If they could, and did, do this, what stops AA?

    Maybe, if AA stock drops more than it already has, they'll be open to an acquisition. I think an offer today of $10 per share would be successful.
    Aug 22, 2015. 09:42 AM | Likes Like |Link to Comment
  • Do You Seriously Own Alcoa? [View article]
    All this stockpiled aluminum, will be put into normal, commercial production, at some point. When that happens, we can expect to see the price of aluminum fall, rather than rise. Eighty cents per pound, might look really good, then, when extrusion billet is selling for 60ยข per pound. Not good, for AA.
    Aug 21, 2015. 12:11 PM | Likes Like |Link to Comment
  • Do You Seriously Own Alcoa? [View article]
    Gumby is suggesting that speculators are holding aluminum, keeping it out of the market. My question is, if this is true, wouldn't it cause the price of aluminum to rise, rather than fall? Can we reduce supply, and by doing so, decrease price, somehow?
    Aug 20, 2015. 09:15 AM | Likes Like |Link to Comment
  • Do You Seriously Own Alcoa? [View article]
    China' public debt to GDP ratio is just 31% (CIA). That 280% figure includes *all* debt. US public debt is 70% of GDP. Calculated the same way as the 280%, the same figure for the US, is 330%.

    If they're in debt trouble, then we're in even worse debt trouble. We'll implode long before they do.

    http://onforb.es/1GwpXJf

    They can, and did, devalue the currency. The US doesn't have the same option. And yet, we see the dollar strengthening.

    I see US exports falling, while China's (including aluminum) rise.

    I can't interpret any of this is a way that's favorable to AA.
    Aug 18, 2015. 10:58 AM | 1 Like Like |Link to Comment
  • Do You Seriously Own Alcoa? [View article]
    Aricool,

    Of course the eat and drink (and breathe) in China. :-)

    The point was, that without the same incentive system (cost and profits), we can't expect the same behavior from China, on the production side, as we would from a firm in a more free-market economy.

    There was an intention behind the currency devaluation. One good guess, is the benefit sought is more exports, which would include aluminum.

    These two points, don't work to AAs benefit, which is kind of what we're discussing here. No one is discussing iron ore.
    Aug 17, 2015. 10:37 AM | Likes Like |Link to Comment
  • Do You Seriously Own Alcoa? [View article]
    China doesn't have the same cost or profit objectives, that we do. To them, aluminum is a social program, a way to keep people employed. With their economy slowing, the *last* thing we'd expect, is a reduction in production of aluminum.

    The recent currency weakening is intended to increase exports, like aluminum.

    You can be sure they'll have plenty to export, at any price. Not positive, for AA.
    Aug 13, 2015. 09:56 AM | Likes Like |Link to Comment
  • Why I Just Bought CenturyLink [View article]
    If CTL sticks to its guidance of 60% of FCF to dividends, then they should be okay. If the bond credit rating goes lower, though, it's a new ball game. They're BB now, on negative outlook, so that may become a factor.

    CTL *did* cuts its dividend, by 25%, a couple of years ago. At the same time, they raised the buyback by a similar amount. That's useful information to know, should be factored in to decisions on this stock.

    Looks like it's a high-risk, high-reward scenario here.
    Aug 12, 2015. 09:43 AM | 1 Like Like |Link to Comment
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