In a report published Wednesday, Bank Of America analyst Timna Tanners cited "worsening aluminum fundamentals" as a reason to downgrade Alcoa Inc AA to Neutral from Buy with a price target lowered to $17 from a previous $20.
Tanners noted that pressure from LME warehouse rules changes and Chinese exports have hurt the company's near-term outlook, eroding the premium after its trailing twelve months (TTM) strength while continued strength in the U.S. dollar can drag the outlook even lower.
Tanners argued that while aluminum can be more defensive versus other commodities, it is no longer expected that falling premiums can be offset by LME price strength near term. The analyst also wrote that Bank of America's Metals Strategist Michael Widmer recently slashed his aluminum price forecast and premium assumptions, noting a new expected surplus.
Finally, Tanners argued that the global market will see a deficit of around 1 Mt in 2015, based on an assumption that China would not be a material net exporter. However, Chinese exports have thus far exceeded expectations, and now imply a global 1 Mt surplus.
Alcoa's downgrade coincides with the analyst's downgrade of Europe based Norsk Hydro to Underperform and Century Aluminum Co CENX to Neutral.
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Posted In: Analyst ColorAnalyst RatingsaluminiumBank of AmericaCommoditiesLMEMichael WidmerTimna TannersUS Dollar
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