Alcoa shares in New York were hammered the most in over a year on Wednesday after CFO Molly Beerman warned investors that the company's alumina segment faces heavy losses from the energy shock and ongoing disruption at the Hormuz maritime chokepoint.
Beerman was blunt with investors while giving a presentation at the Wells Fargo Industrials & Materials Conference.
She said, "Our alumina segment is very pressured right now," adding, "The segment as a whole will be underwater."
Beerman said the unprofitability in the alumina segment stems from a toxic cocktail of soaring energy costs, supply disruptions in the Gulf region, and LNG disruptions in Western Australia following Cyclone Narelle.
Alcoa's alumina refineries are heavily exposed because they rely on fuel and electricity, and typically ship material to aluminum smelters in the Persian Gulf.
Alcoa's alumina refineries are mainly in Western Australia, Brazil, and Spain. None are located in the Gulf region.
What's important is that the company's refining assets are outside the Gulf, but its alumina cargoes feed Gulf smelters, making the business exposed to ongoing Hormuz shipping disruption and Gulf energy shocks.
Alcoa expects 2026 Alumina segment production of 9.7-9.9 million metric tons and shipments of 11.8-12.0 million metric tons.
Beerman's warning sent shares tumbling 9.5% in New York on Wednesday, marking the largest one-day drop in 14 months. Shares were up 2% in premarket trading, clawing back some of yesterday's losses.
Year-to-date, the stock is up 23.4% and is nearing its 2022 highs.
According to Bloomberg data, Wall Street analysts are mostly bullish on AA.
We have cited several institutional metal desks, including Mercuria, Goldman, and JPMorgan, all of which see the Gulf energy shock producing a supply shock in the aluminum market. This has sent prices back to 2022 highs.
Mercuria commodities analyst Nick Snowdon recently told Reuters on the sidelines of the Financial Times Commodities Global Summit in Lausanne, Switzerland, that "The scale of the supply shock we're seeing in the aluminum market is probably the largest single supply shock a base metals market has suffered in the post-2000 era."
Snowdon then told the outlet, "We are already in a 'black swan' event. No one could have foreseen something on this scale."
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Alcoa recently warned investors that the energy shock would weigh on second-quarter earnings.