Alcoa pulling back as Nomura sees significant downside risk

|By:, SA News Editor

Alcoa (AA) -1.4% premarket after Nomura reiterates a Neutral rating and $7 price target on the stock, saying significant downside risk looms as LME aluminum values continue to free fall while GRP margins should be pressured in Europe owing to AA’s inability to pass on higher premiums downstream.

At spot aluminum of $0.80/lb., the firm estimates FY 2014 free cash flow at negative $630M, or -3.6% FCF yield.

While recent capacity curtailments in China are incrementally positive, Nomura still sees growing Chinese surplus over the next three years outweighing modest tightening outside of China, limiting the likelihood of a sustained market deficit.