Kaiser stock price hits all-time low
China's production increase cited as main reason
John Stucke - Staff writer
The share price of Kaiser Aluminum Corp. tumbled 34 percent Monday to close at an all-time low after an analyst said Chinese aluminum expansion had surpassed expectations.
The news dropped Kaiser's stock price to $1.05 a share, down 56 cents in an especially tough business climate for the company with smelters in Mead and Tacoma, and the Trentwood rolling mill in the Spokane Valley.
John Tumazos, a senior analyst with Prudential Financial, issued a research report Monday that said China is likely to become an aluminum exporter because of broad expansion.
"We are impressed that Chinese capacity is being added by 36 different companies in 17 different provinces, which is diverse," he wrote."It seems credible and widespread."
Lending to that credibility was a $360 million investment by Alcoa Inc. into Chinese aluminum. The world's leading aluminum concern has similar investments across the globe.
The report and an overall down day on the markets sent all aluminum stocks south.
Kaiser spokesman Scott Lamb said that while the company doesn't comment on analyst reports, he did say that the Chinese aluminum expansion offered yet another difficult element facing struggling aluminum companies.
He said Kaiser made a small investment in Chinese aluminum during the mid-1990s that fell apart. Today, Kaiser has no such investments.
Lamb said almost all of China's primary aluminum output has been used within the country for major infrastructure projects.
The research report issued Monday changes those dynamics.
If China can surpass its own aluminum needs, then the country will likely begin exporting its lower-cost metal, driving up inventories and perhaps driving down costs.
The scenario led Prudential to cut long-term earnings estimates when Tumazos said that during the next eight years, China will boost its aluminum production enough to offset the idled capacity in the Pacific Northwest.
The 10 aluminum smelters in Washington, Oregon and Montana have been shut down for more than a year, many because of electricity prices that skyrocketed.
Even as Northwest aluminum production has been idled for a year -- that's about 40 percent of America's capacity -- prices fell and stockpiles grew.
It has made any prediction of restart in the region a guessing game.
With uncertainty in the United States, China is proceeding with what is called the Three Gorges hydro project, a massive plan to dam and flood a 350-mile stretch of the Yangtze River. The planned electricity generation from turbines in the dams would offer ample power for needy aluminum smelters.
There are other power projects, too. A coal-based station north of Beijing is expanding, along with a numerous large thermal energy stations.
"Consequently, we cut aluminum producer stock price targets, earnings estimates, aluminum industry ratings and aluminum price forecasts in our models to 2010," Tumazos wrote.