Alcoa Inc (NYSE:AA)’s third quarter could be a bit higher than its second quarter, according to Morgan Stanley analysts. They have increased their base case target by $2 to $13 a share but maintained their Equal-weight rating on the aluminum maker’s stock.

Alcoa

Higher aluminum prices benefit Alcoa

In a report dated June 23, analysts Paretosh Misra, Piyush Sood and Marcus Lindberg say Alcoa Inc (NYSE:AA) should benefit from higher premiums on aluminum. They say stronger primary metal prices could lift the company’s earnings results. However, they note that Alcoa has been reporting weakness in alumina sales, which they say could partially offset contributions from Ma’aden and Davenport.

Looking at Alcoa’s estimates

They maintained their second quarter estimate of 13 cents per share. They note that Alcoa Inc (NYSE:AA) posted 9 cents per share in the first quarter. Then they adjusted that price half a cent lower to account for the higher share count and subtracted 1 cent for FX and another half cent for the company’s upstream guidance.

For the third quarter, the Morgan Stanley team estimates about 14 cents per share in earnings. They expect about a 2 cent per share increase in earnings due to the increase in spot metal prices quarter over quarter.

They raised their 2015 earnings per share estimate from 48 cents to 65 cents per share based on higher premiums on metal pricing. They’re assuming average regional premiums of 16 cents per pound for 2015. That’s compared to their previous estimate of 11 cents per pound and expected spot prices of about 19 cents per pound. They say the recent premium increases in Japan and Europe suggest that the record regional premiums in the U.S. could remain higher for longer than they previously believed.

Weakness in alumina surprises

The analysts say it’s surprising that Alcoa Inc (NYSE:AA) reported weakness in alumina sales even though Indonesia banned the material. They note that implied pricing for bauxite imports in China has increased by 17% to $60 per ton. However, they say the mix could be different because of the ban. They say spot alumina prices declined 9% to $307 per ton.