Aluminum is a highly utilitarian metal that has application across multiple Industries. However, prices have fallen throughout 2023, which has caused problems for weaker aluminum stocks.
Currently, aluminum prices have fallen by $178 per ton which is more than 7% lower than it was at the beginning of 2023. Reports from earlier in the year suggested that there is oversupply coupled with weak demand. Based on those factors, the outlook for the sector remained weak through at least the end of 2023.
Those projections seem to have at least some accuracy and that should provide investors enough reason to adjust their portfolios accordingly.
Century Aluminum (CENX)
Century Aluminum (NASDAQ:CENX) has suffered greatly due to the decline in aluminum prices. Those declining prices are the primary reason that investors should avoid the stock. The company has not been able to keep up with the operational effects of declining prices, which have affected the company in a fundamentally negative way.
Century Aluminum’s most recent earnings report tells the story very clearly. The price of aluminum declined by $134 per ton between Q2 and Q3. During Q2, the company reported $575 million dollars in sales leading to earnings of $7.5 million. The decline in aluminum prices had very severe effects on the company. Sales declined to $545 million, leading to a $42 million net loss.
It’s evident that Century Aluminum is very susceptible to price swings. The company barely managed to eke out a profit during Q2. It suffered a substantial loss during Q3 and with prices remaining muted it’s likely that the company will face similar troubles in Q4. My advice: if you’re interested in aluminum stocks, steer clear of this one.
Tredegar (TG)
If the situation at Century Aluminum was bad, it’s actually worse for Tredegar (NYSE:TG). Tredegar produces plastic and polyester films and conducts aluminum extrusion — a process that turns aluminum alloy into objects with multiple uses.
Management sites many of the same issues including the down cycle in aluminum prices. The company also notes that it is cyclically entering the low season of the winter months. That suggests that there’s little reason to expect improvement anytime soon.
From a fundamental perspective, things plainly don’t look good for Tredegar. During the three months that ended September 30th, sales volume declined by 28.6%, falling to 32,457 lbs. of aluminum. Declining prices, combined with falling volumes resulted in a decline in revenues of 32.3% during the period.
The company was already doing quite poorly and reported a $1 million dollar net loss a year prior. That loss swelled substantially during Q3, reaching $50.4 million.
Norsk Hydro (NHYKF)
Norsk Hydro (OTCMKTS:NHYKF) is suffering along with the aluminum stocks mentioned above. This is the same story that repeats again and again when investing in commodities stocks. High prices create very good times and sinking prices create the opposite.
Just as with the other firms in this article, Norse Hydro is is suffering as aluminum prices fall. The company notes lower aluminum prices as well as falling extrusion volumes as the primary factors in its weakening results. Beyond that, the company also noted that it received a smaller compensation for carbon dioxide offsets during the period. All those factors combined reduced its earnings and negatively affected results.
The company saw its EBITDA fall by more than 44% during the period. The net result was a loss that exceeded the US dollar equivalent of $57 million. The company notes that it’s outlook remains strong through 2030 due to secular factors like strong demand from emerging industries such as electric vehicles but it is best to stay on the sideline at this time.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.