About That Spinoff… Alcoa’s Split Doesn’t Go As Expected

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In October, Alcoa, Inc. divided the company into two separate entities. The split created a commodity-focused company which retains Alcoa’s name and its upstream business. The second entity, called Arconic, now operates as the company’s downstream business.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

When the split was announced last year, Arconic was supposed to drive value for shareholders once listed as a separate entity while Alcoa’s stock price was expected to remain depressed since, at the time the split was announced, aluminum prices were trading near their 2009 lows.

Alcoa shares have risen near 50% since the company split. Source: MetalMiner analysis of stockcharts.com data

Alcoa shares have risen near 50% since the company split. Source: MetalMiner analysis of @stockcharts.com data.

Guess what happened?

Alcoa shares have risen nearly 50% in less than a month… or since the company formally split. The undergoing bull market across the industrial metals complex put aluminum prices trading at a 15-month high this month.

Not only have Alcoa shares exploded, but Arconic shares have fallen significantly since the split due to concerns over the health of the aerospace industry, a major customer market for Arconic.

Arconic shares fall since the split. Source:MetalMIner analysis of stockcharts.com data

Arconic shares have fallen since the split. Source: MetalMIner analysis of @stockcharts.com data.

To conclude: Market dynamics have changed since Alcoa announced the split. If alumina and aluminum prices keep on rising, which is likely, Alcoa’s upstream business will continue to be the investor’s pick in 2017.

Comments (3)

  1. Edvin says:

    Why is it likely that alumina and aluminum prices keep rising when coal prices are likely to soften?

  2. Raul de Frutos says:

    Hello Edvin,

    We don’t necessarily agree with the assumption that coal prices are likely to soften and even if they did, we have to remember that coal is up nearly 300% this year while aluminum just 17%. You can find additional information on why we expect aluminum prices to work higher in an article we just published titled “The aluminum bull market: Why you should buy now”.

    Cheers!

  3. Edvind says:

    Thank you for the answer!

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