When the price of aluminium goes up, does that usually lead to a more prosperous business cycle for aluminium companies? Also, what about input costs, e.g. the current spike in oil prices--do they greatly impact metal producers? Anyway I'm asking this because I invested quite a bit of cash in Alcoa (NYSE:AA) recently and am wondering if it will likely be profitable in mid-/long-term (within about a year).. for the moment it's pretty volatile which scares me from time to time haha. Thanks a lot
I am just a student, so I wouldn't advise you to do more than confirm what I'm about to tell you with a licensed investment adviser before acting upon it. Firstly, the price of aluminium does impact the performance of the aluminium company's stock. This relationship, however, is not perfect and depends on the individual characteristics of the company. The relationship is more pronounced in companies that focus on only one element of production, such as extraction, as opposed to those that diversify their operations into other activities along the production line like refinement, etc. Secondly, about the input costs, sure they do affect metal producers (each differently from the next) as they do many other industries. However, the prices of metals and other commodities are likely to rise with any unanticipated inflation that may arise as a result of the current state of oil prices. So much so that that the effects of the oil price spike may be ignorable. Thirdly, in my opinion one year, is a short-term investment. In the long-term, however as long as your company survives I expect that it will do fine, meaning it may well be profitable. Volatility, however is a natural thing to all investments, but the risk-free ones and a premium is paid to all investors to compensate for this volatility, or risk as it is commonly called. What really matters at the end of the day is the long term trend, which is unknown but generally assumed to be positive. Lastly, if you really want to invest in the aluminium industry I suggest that you ask around about any Exchange Traded Fund or some other well diversified investment vehicle with a focus on Aluminium Producers or Aluminium itself. That would certainly be a safer way to participate in the Aluminium Industry, than investing in a single company.
