Alcoa Deal Not Certain

A report that diversified mining giants Rio Tinto(RTP Quote - Cramer on RTP - Stock Picks) and BHP(BHP Quote - Cramer on BHP - Stock Picks) may both want to buy aluminum smelter Alcoa(AA Quote - Cramer on AA - Stock Picks) for up to $40 billion may be little more than a banker's fantasy.

The story, from the London-based Times newspaper, would be the latest transaction in string of recent monster deals across the metals sector, should it actually go through.

Late last year, Freeport-McMoRan Copper & Gold(FCX Quote - Cramer on FCX - Stock Picks) struck a $26 billion acquisition plan for Phelps Dodge(PD Quote - Cramer on PD - Stock Picks), and before that there was a bidding frenzy in which a bevy of firms, including Anglo-Swiss concern Xstrata, Canada's Teck Cominco(TCK Quote - Cramer on TCK - Stock Picks), Phelps and Brazil's Companhia Vale do Rio Doce(RIO Quote - Cramer on RIO - Stock Picks), went after Canada-based nickel miners Inco and Falconbridge. Eventually Xstrata won Falconbridge, while CVRD took Inco.

That recent history may have some investors thinking that it's only a matter of time before the aluminum basin catches fire also. However, such a view would be ill-conceived, because the acquisition of Alcoa makes little sense for either BHP or Rio Tinto.

For starters, the market for aluminum isn't the same as for nickel, or even copper, the underlying metals for the other transactions mentioned above.

It's true that aluminum prices have lagged while other metals have spiked. Aluminum currently sells for around $1.25 a pound, double where it was five years ago, but during the same period copper prices have more than quadrupled from 60 to 70 cents a pound to $2.55 recently. Last year, copper surged close to $4 a pound.

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