What's going on?
On Wednesday, Alcoa – America’s largest aluminum producer – cut its profit targets for the year, blaming trade tariffs and rising energy costs (tweet this). The news sent its shares deep underground – they fell by over 12%.
What does this mean?
Alcoa initially expected tariffs on imported steel and aluminum to be a boon for its business, driving up the price of aluminum (that it then sells onto customers). Instead, its costs have gone up by $15 million: the company produces some aluminum in countries like Canada, before shipping and selling it within the US – running into new, extra costs.
And when it rains, it pours: the price of aluminum has plummeted by nearly 25% since April. Alcoa’s had to cut its prices, which has hit profits hard.
Why should I care?
For markets: Investors are stocking up on tin cans for fear of slower economic growth.
The impact of trade tariffs is still unknown – even to the chairman of the US Federal Reserve – which puts companies on the back foot, since planning becomes more difficult. It’s also making investors nervous about growth prospects, meaning metals are having an even worse time – the price of metals often follows economic growth as they’re used to make tons of products that are in higher demand when the economy’s going swimmingly.
The bigger picture: Feel the fear and do it anyway.
The Farnborough Airshow is one of the biggest in the aerospace industry, where big jet makers like Boeing and Airbus usually receive lots of orders and announce major deals. But with trade wars escalating and further potential tariffs looming, it appears some Chinese buyers have asked to remain anonymous in case they spark further tensions.