Aluminum producers tumble on LME rules; Alcoa plays down impact
Alcoa (AA -7.2%) shares tumble as the LME reveals final rules designed to speed the delivery of metal out of its global warehousing network.
The LME's rule essentially would force warehouses that are home to long waits for metal to deliver out more metal than they take in, a move analysts say could speed the flow of aluminum out of warehouses and pressure prices lower.
Alcoa, which had criticized proposed changes, now voices support for a "more transparent marketplace" while calling on the exchange to give a clear outline on when it plans to implement the new rules.
Sterne Agee says while overhangs in the plate/non-plate markets are expected to abate in 2014 as aerospace original equipment manufacturer build rates increased, non-plate trends no longer support such an engagement and an intensifying aerospace plate overhang will continue through 2014.
For contrarian investors who think the worst of the correction in commodity stocks is over, Oppenheimer thinks it's time for selective buying in the downtrodden sector that would enjoy a big benefit from any upside surprises to emerging markets growth prospects. The firm's top picks: CMP, CLF, WOR, KALU, RTI. It also likes paper and forest product stocks UFS, KS and SWM.
Risks surrounding the Chinese-fueled commodity supercycle leave higher, fixed-cost specialty metals and miners vulnerable, so in preparing a list of stocks to buy, BAML seeks companies able to control more of their destiny beyond waiting for improving market conditions. BAML says a rebound in global growth over 12-18 months could spark these favorites: NUE, KALU, SXCP, TMS, RS, ATI, RTI, CNX.
Sumitomo raises its forecast for a global aluminum surplus to the highest level in two years, saying demand from China won’t be enough to absorb new capacity. Supply is projected to outpace demand by 866K metric tons this year from 760K tons in 2012; China alone will have a surplus of ~510K tons after years of smelting capacity expansion.
Kaiser Aluminum Corp. (KALU) declares $0.30/share quarterly dividend, 20% increase from prior dividend of $0.25. Forward yield 1.88%. For shareholders of record Jan. 25. Payable Feb. 15. Ex-div date Jan. 23. (PR)
Can artificial scarcity continue propping up the aluminum market in the face of a production glut? Barclays predicts stockpiles will grow to 8.67M metric tons by the end of 2013. But with about half of all inventories possibly tied up in financing deals, many buyers are having trouble procuring supply, and analysts polled by Bloomberg expect prices to rise 14% next year. The EC recently said it's discussing the issue of premiums caused by financing deals.