Alcoa Inc (AA) Slumps After JPMorgan Downgrades Stock Rating

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JPMorgan Chase analysts downgraded their rating for the shares of Alcoa to Neutral with a price target of $18.50 a share

Alcoa plummeted after analysts at JPMorgan Chase downgraded their rating for the stock today. The shares of the aluminum giant are trading $15.69 per share, down by more than 5% at the time of this writing around 2:49 in the afternoon in New York.

Alcoa stock rating

JPMorgan Chase analysts, Michael Gambardella and Tyler Langton downgraded their rating for the shares of Alcoa from Overweight to Neutral. They also reduced their price target for the stock from $20 to $18.50 per share.

In a note to investors, Gambardella and Langton explained that they reduced their rating and price target for Alcoa due to concerns from their metal strategists that the “fundamentals in aluminum are deteriorating.”

The analysts are also concerned that the premiums in the United States would also go downward, which was recently observed in Europe.

“While Alcoa’s efforts over the past several years to reduce its costs in the upstream and grow its downstream should help to offset some of the these pressures, we think a Neutral rating is warranted given the downside risk to stock given just how much aluminum premiums have increased over the past several years (U.S. premiums currently up more than 200% over levels seen at the beginning of 2012),” wrote Gambardella and Langton.

Data from the London Stock Exchange showed that the three-month delivery for aluminum declined by almost 11% to $1,871 per metric ton.

The aluminum prices were negatively impacted by the increasing supply from Russia due to weaker ruble, low domestic demand as well as in China and the Middle East.

Alcoa converts San Ciprian alumina refinery to natural gas

Separately, Alcoa announced that its San Ciprian alumina refinery in Lugo, Spain has been converted to natural gas from fuel oil after the completion of a new gas pipeline. The company invested $25 million to the project as part of its initiative to create lower cost and globally competitive alumina business.

In a statement, Alan Cransberg, president of Alcoa Refining said, “We are increasing the ability of our San Ciprian refinery to compete on a global scale by converting the facility to a secure supply of natural gas, which is lower in cost over the long term and a cleaner alternative to fuel oil for refining.”

Alcoa’s decision to convert the facility to natural gas would reduce its energy costs by $20 per metric ton, which supports the company’s goal to improve its position in the aluminum cost curve to the 21st percentile by 2016.


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