Analysts at Morgan Stanley recently released a report explaining their updated bullish take on the aluminum market. Aluminum, like many other commodities, has been hit hard in the past year.
However, analysts now believe that the skies are clearing for the metal for the remainder of 2015.
Bad News Barrage
In a matter of only six months, the aluminum market has been decimated by collapsing oil prices, weakening producer currencies, soft demand in Europe and China, a cut to China’s export taxes and the LME’s warehouse reform program.
Sometimes, the absence of negative catalysts can be enough in itself to provide price relief. Analysts believe that, with this storm of negative news now mostly in the rear view mirror, the aluminum market is now well-positioned for improving fundamentals.
Falling Premia
The surge in global aluminum supply in Q1 coupled with the dampened demand growth and an increase in Chinese exports led to a Q1 collapse in merchant premia by 33-76 percent versus 2014 highs.
Analysts see this reduction as a positive for the aluminum market looking forward. “For any other metal market, a fall in premia (extra paid for prompt delivery) would be a bearish event. But for aluminum, it marks the passing of 5 years of various LME warehouse management strategies, which is bullish,” they explain in the report.
Forecasts
Analysts predict a 3.0 percent year-over-year (Y/Y) decline in aluminum prices in 2015 to $1818/t. However, they forecast an 8.0 percent Y/Y increase in pricing in 2016.
Analysts see 2015 premia of $440/t for the U.S., $285/t for Europe and $340/t for Japan.
Aluminum names
Worth noting, Standpoint Research’s Ronnie Moas recently upgraded Alcoa Inc AA 0.99% to Buy, with an $18 price target. Shares are down more than 11 percent year-to-date.
Century Aluminum (NASDAQ: CENX) is down more than 41 percent in 2015, while BHP Billiton plc (NYSE: BBL) is up 14 percent. Alumina Limited (OTC:AWCMY) is nown nearly 10 percent on the year.
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