The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (
alumina shipments rose from 14.6 million tons in 2006 to 16.5 million tons in 2010, with a blip in 2009 due to unfavorable economic conditions that led to a decline in the overall industrial output and demand for aluminum.
Alcoa, which competes with mining giants like Rusal,
, is upbeat about the global outlook for aluminum and expects the strong demand to continue in the next decade. Last quarter, Alcoa
almost $6 billion in sales, up 20% year over year.
Given the unique characteristics of aluminum and its growing demand, we expect Alcoa's alumina shipments will rise to 21 million tons by the end of our forecast period. Trefis members, however, predict a more optimistic scenario with the shipments reaching 25.4 million tons - implying an upside of close to 5% to our Alcoa stock price estimate.
We have a
, implying a 28% premium above the current market price.
Aluminum is lightweight and using it in automobiles can help reduce vehicle weight and improve fuel efficiency. Lighter automobiles also mean lower emissions. The unique malleable and ductile characteristics of aluminum make it ideal for making cans. Moreover, it is very convenient to use aluminum foil for wrapping and storing food, and it is widely used in the food industry.
Strong Global Outlook for Aluminum
Alcoa predicts the global consumption and supply of aluminum to double from its 2010 levels by 2020, driven by an increasing demand for more efficient infrastructure and transportation solutions. It predicts aluminum demand will grow at a compounded average growth rate of nearly 7% annually.
This represents a growth in annual demand for bauxite from 214 million tons to 400 million tons. Alumina is expected to grow from 82 million tons to 156 million tons in a year, and aluminum growth would be from 39 million tons to 73 million tons per year.
Alcoa predicts the automotive and aerospace markets will be the main drivers for growth in aluminum demand from the growing need for more fuel-efficiency in auto and aircraft industries.
Our complete analysis of Alcoa's stock is
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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.