Commodities: Alumina
The QRE ETF has corrected by 15% over the past few weeks from its June high, and we would say it’s now in an optimal accumulation phase for investors who don’t want to run the gauntlet of earnings misses, operational issues, etc. However, with the ETF holding ~15% in energy and utilities stocks, we still think picking individual stocks is a better way to go for the moves that we’re targeting.
S32 +9.74%: announced the transformational sale of its aluminium, alumina and bauxite business to Alcoa in a deal worth up to US$5.6bn ($8.1bn), materially simplifying the portfolio and accelerating its transition toward a future-facing base metals producer. The consideration includes US$3.1bn in cash, around US$1bn in Alcoa shares, US$750m of assumed net debt and lease liabilities, plus a US$750m contingent value right (CVR) linked to aluminium and alumina prices over the next four years.
MM bought S32 last month for our Active Growth Portfolio when it wasn’t on our Hitlist; hence this morning we’ve discussed the stock and our reasoning to gain exposure to the miner following its recent pullback.
Hi Market Matters Team
It’s not just copper that’s marching higher, aluminium is dancing a similar jig heading towards its highest level in years. This year is increasingly being described by aluminium producers and traders as a “gap year”, a pivotal period where years of underinvestment and constrained supply are colliding with rapidly accelerating demand. The metal sits at the centre of global electrification, power-grid expansion, EV production and aerospace demand, yet new smelting capacity is struggling to keep pace due to high energy costs, environmental restrictions and limited spare capacity.
Hi guys, would love your view on s32. With the current sell off in commodities and its silver exposure, would you think it is a buy or is there a better way to get exposure now to base metals?
Aluminium and steel-related commodities drive S32’s earnings, with bauxite, alumina and aluminium at the core, plus silver, while the company is also a major global manganese producer with exposure to met coal. This leaves S32 well leveraged to steel demand, a theme we like amid the global push toward decarbonisation, but with less exposure to iron ore than peers like BHP and Rio, where rising supply could prove a headwind.
Volatility has been extreme in precious metals of late, but in the bigger picture, we can see deficits and declining inventories suggesting silver is now increasingly vulnerable to periods of strong investment demand, which in turn could lead to further bouts of liquidity tightness. S32 is exposed to silver through its 100% interest in the Cannington mine in QLD, which produces silver, zinc and lead, and is one of the top 10 silver mines globally.
S32 closed up over 3% on Monday after embracing yesterday’s manufacturing data and rallying throughout the day after posting its session low early in the morning.
Alcoa (AA US) has struggled this week, slipping ~0.6%, in line with the underlying commodity. US steel and aluminium stocks surged Monday after President Trump said he would impose 25% duties on all metals imports into the U.S., but the initial gains from Nucor Corp (NUE US) and U.S. Steel (X US) have been mainly lost.
