ALCAN- Time to shine says John Hill
HE RATINGS GAME
Citigroup: It's aluminum's turn to shine
Analyst upgrades Alcan, Aluminum to buy
PrintE-mailDisable live quotesRSSDigg itDel.icio.usBy Laura Mandaro, MarketWatch
Last Update: 3:51 PM ET Feb 8, 2007
SAN FRANCISCO (MarketWatch) -- An upswing in aluminum prices stands to benefit major world producers Alcoa, Inc. and Alcan, Inc., said Citigroup analyst John Hill, who upgraded the two companies in a report released Thursday.
"We find the aluminum situation is brightening, with prices ticking higher after badly lagging other nonferrous metals during the powerful up-leg of the commodity supercycle over the past four years," Hill said.
He raised earnings estimates on Alcoa (AA : alcoa inc com
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AA32.62, +0.47, +1.5%) and Alcan (AL : Alcan Inc
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AL51.77, +1.11, +2.2%) to buy from hold, citing stronger aluminum pricing and increases in margins for the companies'downstream, or more finished products.
Supporting demand, buyers of metals for industrial purposes are likely to continue to substitute aluminum for other pricier metals, such as copper, zinc and stainless steel, said Hill.
And worries about an oversupply from Chinese production of alumina, the raw precursor to aluminum, are overblown, he said.
"On a net basis, we see the China situation as supportive of long-term aluminum prices in the $1.10/lb range," Hill said, adding that it was unlikely that prices for the lightweight metal would drop back to 80 cents a pound.
The price of aluminum for delivery in three months rose 23% on the London Metal Exchange from Jan. 3, 2006 to Dec. 29 of that year. That rise compared to a 144% increase in the price of nickel and 122% increase in the price of zinc, LME data show. Copper prices rose 44% after a losing much of its early-year gains in a May sell-off.
Aluminum prices sold off sharply on Thursday. But as of Wednesday, prices over the prior four weeks had been rising compared to a fall in copper and zinc prices.
Shares in Alcoa were recently up 1.2% to $32.52. Shares in Alcan had risen 2% to $51.65.
Laura Mandaro is a reporter for MarketWatch in San Francisco.
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