Alumina (ASX:AWC) share price cools off but it’s up 19% in September. Here’s why

Alumina shares have taken a step back today but still sit on top of the benchmarks in September.

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a woman in high visibility clothing and a hard hat stands in front of an aluminium smelter.

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The Alumina Ltd (ASX: AWC) share price has been outpaced by its ASX benchmarks over the last few weeks.

Whereas the S&P/ASX 200 Index (ASX: XJO) has slipped 2.6% into the red over the last month, Alumina shares have soared 19% in September alone and now trade at $2.12.

Let’s investigate further.

What’s fuelling the Alumina share price lately?

We can break the catalysts driving Alumina’s share price down into two segments.

The Alumina share price has been on the move since the company reported its FY21 earnings last month. Prior to this, it was trading sideways with lacklustre results.

In its earnings report, the company realised record production of 6.4 million tonnes and a higher realised price per tonne, despite lower profits year on year.

Alumina’s shares immediately gained some traction and started to march northwards in the days after its FY21 earnings release.

Let’s not forget aluminium prices

One other factor driving the Alumina share price stems from the relationship Alumina has with the underlying commodities it deals in.

Given Alumina is an ASX resources share that produces commodities, it is considered a price taker. As such, its share price will fluctuate with volatility in the broader commodity markets.

Alumina has a 40% stake in Alcoa World Alumina and Chemicals (AWAC), considered the largest aluminium venture in the western world.

The price of aluminium has been on an extended rally this year to date, having climbed 44% since January. Recently, Aluminium futures kissed US$3000/Tonne (T) for the first time since 2008.

Aluminium now trades at US$2,875/T, having climbed from US$2,706 since the beginning of September – a US$169/T increase in 2 weeks.

Because Alumina’s share price is sensitive to the price of aluminium, we can expect some reaction to the price rise.

What’s more, there is generally a lag in the relationship, from a few days to a few weeks.

Looking at the aluminium price chart, we can see it made a rapid move from US$2,535 to its 5-year high starting on 19 August.

Cross-referencing with Alumina’s chart, we can see it began to climb at pace from $1.67 on 27 August, eight days after the price action in the aluminium markets.

Considering the company’s record FY21 production and the unique relationship of its share price to the underlying commodities markets, it makes sense that Alumina’s shares have climbed almost 20% since September.

Alumina share price snapshot

The Alumina share price has climbed 15.5% this year to date, extending the return over the past 12 months to 42%.

These results have outpaced the broad index’s return of around 25% over the past year.

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The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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