Alcoa (NYSE:AA) is about to release earnings. Ponder these Bear Case Caveats:
Overcapacity will remain a material headwind to aluminum price appreciation, preventing margin expansion for Alcoa and other significant competitors. If a business cannot increase margins its going to have a hard time creating shareholder wealth.
Competitors within the aluminum industry will refrain from pursuing significant curtailments, resulting in lower aluminum prices in the long-run. This is a death spiral generation defining move. The object is not profit or loss for the quarter or even the year. Its long-term domination. diabolical isn’t it.
Aluminum price volatility was driven by macro events in recent years. Aluminum prices will remain depressed for the foreseeable future despite economic growth.
George Gutowski writes from a caveat emptor perspective.