Wall Street has caught up with the full impact of the Grenfell tower fire in London as investors have spent Monday and Tuesday selling down the shares of Arconic, the Alcoa spin-off which produced the cladding panels that seem to have played a major part in the fire consuming the residential high rise.
Shares of Arconic had been surging up to Monday’s session on Wall Street – up 37%, even though the fire happened on June 14 and the aluminium panels had been high on the lists of suspected causes or contributors.
At least 79 people were killed in the Grenfell fire, and the UK government said on Tuesday that cladding on 95 high-rises used for social housing in 32 local government areas across Britain had failed fire safety tests. Cladding on at least 600 buildings will be tested.
What remains unknown is why this cladding – the non-fire resistant type with polystyrene core – was used despite widespread knowledge that it was not supposed to be used on high rise buildings (especially above 40 feet high) and had been banned in the US and Germany.
London’s Metropolitan Police are considering manslaughter charges in the case.
Reuters reported last weekend that six emails sent between Arconic’s UK sales manager and executives at the contractors working on Grenfell Tower made clear Arconic employees knew the flammable version of the cladding was being fitted to a high-rise tower.
That’s even though some of the company’s own literature said such panels were not suitable for buildings more than 40 feet high.
And those comments and the realisation of the key role the cladding payed spooked US investors and Arconic shares lost more than 8% on Monday and 9% on Tuesday.
The shares closed at just over $US21.80 in New York. The shares had closed at $27.60 on June 13, the day before the fire, so they are down 21% since June 13. That’s a loss of more than $US2 billion in value.
Yesterday’s losses came despite a move by the company to distance itself from the fire on Monday after the shares opened down 11%.
Arconic announced it will no longer sell the flammable version for use in high-rise buildings and in a statement tried to avoid the fire, saying the decision had been made because of “because of the inconsistency of building codes across the world”.
But media reports said it was forced to acknowledge the decision had been triggered by the Grenfell disaster which has focused attention why non-fire resistant panels were allowed for use in UK high-buildings.
According to the Financial Times Arconic "makes three types of Reynobond panels for building exteriors: one with a flammable polyethylene (PE) core, a second with a fire-retardant core and a third with a non-combustible core. The first type was fitted to Grenfell Tower when it was refurbished in 2015 and 2016.” "The Reynobond PE panels that will no longer be sold for use in buildings more than 40 feet high, roughly the height of most firefighting ladders. Grenfell Tower is about 220 feet (67m) tall,” according to the FT.
Arconic had been better known on Wall Street for a battle earlier this year with the private equity/hedge fund investment group, Elliott Advisers (the firm moaning about BHP). That saw Arconic’s then CEO quit over a letter he wrote to Paul Singer, the principal behind Elliott which appeared to threaten Singer.
