Bear Case Scenario Alcoa $AA, $XME

Men with burning jackets will rip off their clothes quickly. Sizeable quantities of aluminum tied up in financing deals will hit the market if interest rates increase and cash-and-carry trades that capitalize on the contango exhibited by aluminum futures become less profitable.

Overcapacity is still a major issue and will continue to provide headwinds to both the industry in general and Alcoa in particular.

Some competitors have not curtailed or right sized production and will be trapped in a low price hyper competitive price cycle before they go bankrupt.

George Gutowski writes from a caveat emptor perspective.

Bull Case Scenario Alcoa $AA, $XME

Aluminium demand and pricing are set to recover from cyclical lows. All of which will help leverage Alcoa’s earnings model.

If, as and when the global outlook improves Alcoa will participate and reward shareholders.

Alcoa is a low-cost producer with decent margins. The Saudi Arabian facilities are ultra-low cost. As demand drives upward pricing pressure margins will leverage quickly.

George Gutowski writes from a caveat emptor perspective