BofA Upgrades Chalco, Says Aluminum Prices Have Bottomed

Shares of Aluminum Corp of China Limited ADR ACH have been under pressure for the past 12 months and now fully reflect balance sheet concerns, according to Bank of America Merrill Lynch.

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The Analyst

BofA’s Matty Zhao upgraded Chalco from Neutral to Buy and raised the price target on the company's Hong Kong-listed stock. 

The Thesis

BofA has lifted its 2019 alumina price forecast by 7 percent and cut 2019 and 2020 aluminum price estimates by 5-6 percent, Zhao said in the Wednesday upgrade note. 

Aluminum prices have seemingly bottomed out, the analyst said, projecting an average of RMB14000/t between the second and fourth quarters.

This price will be supported by the fact that 40 percent of China’s aluminum capacity makes losses at a spot price of RMB13785/t, which has led to increased capacity suspensions and closures, Zhao said. While capacity has declined, there has been a slight pickup in demand, she said. 

Demand grew by merely 3 percent in 2018. Demand growth may accelerate in 2019 due to increased spending by China grid, 12 UHV projects that are scheduled for September 2019 replacement demand in transportation and lower concern in property, the analyst said. 

Price Action

Chalco ADR shares were trading up 6.29 percent at $10.82 at the time of publication Wednesday. 

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