Alcoa Inc. (AA), the largest U.S. aluminum producer, jumped the most in almost two years as output cuts and a dispute over warehousing convinced some investors to abandon bets that the stock will fall.
Alcoa, which traded almost three times the average volume over the past 15 days, rose 8.8 percent to $9.36 at the close in New York, the biggest gain since Oct. 27, 2011. Aluminum futures, which have declined 9.4 percent this year on the London Metal Exchange, rose 1.6 percent today.
Aluminum output outside of China fell in September for a third straight month, according to data released yesterday by the International Aluminium Institute. That may have encouraged investors to buy Alcoa shares and close out short positions, said Curt Woodworth, an analyst at Nomura Holdings Inc.
“If you’re heavily short the market and it’s a very crowded trade, it’s something that could get you thinking differently in the short run,” Woodworth, who is based in New York, said in a telephone interview today.
Short sellers borrow shares to sell with the hope of profiting by buying them back at a cheaper price. They bought Alcoa stock “aggressively” amid uncertainty over the resolution of a dispute about aluminum stored in LME-registered warehouses, Macquarie Group Ltd. said today in a report.
The LME, which oversees more than 700 warehouse sites worldwide, is embroiled in a dispute over queues to withdraw metal stored at some of those locations.
The bourse has proposed that warehouses with waiting times exceeding 100 days should ship out more metal than they take in. An end to the delays may reduce so-called physical premiums, or the extra cost to aluminum users on top of the LME benchmark price to take delivery of metal stored in LME warehouses. Lower premiums may mean a lower realized aluminum price for Alcoa.
The LME said Oct. 4 that its board may not reach a decision at a meeting this month on the rule change. Alcoa is among aluminum producers that have objected to the change, saying it will reduce transparency without benefiting consumers.
Short selling in Alcoa reached a record 10 percent of shares outstanding last week, according to data going back to 2006 from Markit, a London-based data provider. That’s more than four times the average of bearish bets in the Standard & Poor’s 500 Index. Alcoa is among the most-shorted stocks in the equity index.
Monica Orbe, a spokeswoman for New York-based Alcoa, declined to comment on the company’s share price.
Alcoa and competing aluminum producers including Moscow-based OAO Rusal, the world’s biggest aluminum producer by volume, have cut output this year amid a global oversupply that has damped prices.
“I won’t say that producers have finally found religion but it looks like there is some discipline,” Woodworth said.
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