We recently compiled a list of the 10 Best Aluminum and Aluminum Mining Stocks to Buy Now. In this article, we are going to take a look at where Rio Tinto Group (NYSE:RIO) stands against the other aluminum and aluminum mining stocks.
Aluminum is one of the most crucial raw materials in the world. The modern transportation industry heavily relies on this shiny metal due to its lightweight and high strength, making it ideal for cost-efficient applications like aircraft.
Sector Performance
Industrial metals, including aluminum, have been swept up in global stock market turmoil due to fears of a deeper U.S. economic slowdown and rising bets on an emergency rate cut by the Federal Reserve, after a weaker-than-expected July jobs report. Concerns over China’s economic performance, particularly its sluggish factory activity, have further dampened sentiment. China’s ongoing property market crisis continues to weigh heavily on aluminum demand, with no clear signs of a turnaround. The combination of weak factory output and a struggling property sector has led to muted GDP growth expectations for the third quarter of 2024, putting additional downward pressure on global aluminum prices.
That said, China’s aluminum production is hitting record highs, with output expected to grow by 2% in 2024, reaching 42 million tons due to the recovery of power supply in Yunnan. While this boosts global supply, it risks worsening the oversupply issue in a market with weak demand. Rising inventories on the London Metal Exchange, now at their highest since 2021, underscore this imbalance, as spot demand remains soft.
Despite these challenges, there is optimism for a recovery in Q4 2024, with aluminum prices expected to rise to $2,550/t if the U.S. Federal Reserve cuts rates, which could ease borrowing costs. However, inflation and high interest rates remain potential risks that could dampen demand further.
Aluminum Market
The U.S. Aluminum market was valued at $12.47 billion in 2023 and is forecasted to surge to $17.94 billion by 2030, reflecting a CAGR of 4.6% from 2024 to 2030.
The 2023 Ducker Carlisle survey highlights a significant increase in aluminum content in vehicles, driven by the push for sustainable transportation. From 2020 to 2030, aluminum content per light vehicle is expected to rise by nearly 100 pounds, reaching 556 pounds. This growth is fueled by aluminum’s use in electric vehicles to extend range and offset battery weight, with electric light trucks like the Ford F-150 Lightning projected to have over 644 pounds of aluminum content. Leading manufacturers are investing in R&D to support these developments.
As discussed previously in one of our articles 11 Best Aluminum and Aluminum Mining Stocks To Buy, China ranks first in aluminum production with an annual output of 41 million tons, which is ten times greater than the second-largest producer, India, with an annual production of 4.1 million tons.
Making Aluminum Production Sustainable
Decarbonization efforts are critical to the aluminum industry, just like they are to the rest of the global sectors. The best-performing producers emit around 4 tons of CO2 per ton of aluminum, far below the global average of 16 tons. Achieving such low emissions requires access to zero-carbon electricity and further technological innovations to push these numbers even lower.
Decarbonization efforts are central to the First Movers Coalition (FMC), which encourages the use of low-carbon primary aluminum. The industry is also exploring two pathways for reducing emissions in refining: quick deployment of innovative technologies or a more gradual approach that addresses barriers. Key technologies include electric boilers, hydrogen calcination, and inert anodes for smelting, all of which aim to significantly reduce emissions when paired with renewable energy sources.
If you check out our article Aluminum Consumption By Country: Top 15, you’ll find that while China was the largest producer, South Korea led in consumption, with nearly 43 kg consumption of aluminum per person in 2022. An interesting fact to note is that, although China produced the most aluminum, Canada was the world’s largest aluminum supplier, with Canadian aluminum exports reaching $9.37 billion in 2022, according to a report by the Observatory of Economic Complexity.
Methodology
For this list, we scanned Insider Monkey’s database of 912 hedge funds and identified companies that are involved in the production, extraction, processing, or sale of aluminum and aluminum-related products. From that group, we picked the top 10 companies with the highest number of hedge fund investors having stakes in them, as of Q2 2024.
Moreover, we also individually researched these stocks to collect analysts’ consensus over the respective stocks’ upside potential. The stocks are ranked in ascending order of the number of hedge funds investing in them as of Q2 2024. For the stocks with equal hedge fund investors’ holders, we ranked them according to their respective upside potential.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Aerial view of an open pit mine, with workers extracting minerals.
Rio Tinto Group (NYSE:RIO)
Number of Hedge Fund Holders: 29
Rio Tinto Group (NYSE:RIO) is a global leader in aluminum production, managing a fully integrated supply chain from bauxite mining to aluminum smelting. Their aluminum is responsibly produced, and through their Matalco JV, they offer fully recycled products.
In the first half of 2024, Rio Tinto Group (NYSE:RIO) reported net sales of $26.8 billion, an increase of 1% compared to the first half of 2023. Underlying earnings increased from $5.1 billion in H1 2023 to $5.8 billion in H1 2024. Moreover, underlying EBITDA rose 3% to $12.1 billion. This favorable financial performance is attributed to significant operational efficiencies in the Aluminum and Copper divisions and the absence of one-time operational disruptions from 2023.
Moreover, cash flow from operations was maintained at $7.1 billion, and free cash flow was $2.8 billion, reflecting consistent operational performance. Regarding liquidity, Rio Tinto Group (NYSE:RIO) maintains a net debt of $5.1 billion and a return on capital employed (ROCE) of 19%, providing ample liquidity for future investments. Looking ahead, Rio Tinto plans a disciplined dividend policy with a 50% interim payout and remains focused on growth through decarbonization efforts and sustainable production technologies.
Rio Tinto Group (NYSE:RIO) has collaborated with Canada’s government, investing $179 million, as announced in July 2024. The JV plans to install the first carbon-free aluminum smelting cells at its Arvida smelter in Quebec, Canada, using ELYSIS technology to launch greenhouse gas-free aluminum production. The plant will boast ten pots running at 10 kA (kiloamperes), providing a push towards sustainable aluminum production.
In addition to the developments in aluminum sector, Rio Tinto and BYD, among other companies, are developing a lithium project in Chile, as part of the country’s push to boost lithium production. This initiative, announced in August 2024, is part of Chile’s broader strategy to enhance its position as the world’s second-largest lithium producer.
Rio Tinto’s share price experienced a decline of 2.77% over the past month and 18.39% year-to-date, due to production issues. These include a 2% decrease in iron ore production due to a train collision in Pilbara, lower copper production due to conveyor belt problems, and reduced alumina output forecasts due to gas supply issues.
Despite these setbacks, analysts remain positive about future growth, projecting an upside potential of 35.6%. As of Q2 2024, 29 hedge funds, with a combined investment of $1.3 billion, are bullish on the stock, as per Insider Monkey’s database.
Overall RIO ranks 7th on our list of the best aluminum and aluminum mining stocks to buy. While we acknowledge the potential of RIO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than RIO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.