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Bank Of America Upgrades Aluminum Companies

Eric Niederer

In a note released Monday, Bank of America analyst Timna Tanners upgraded both Alcoa (NYSE: AA) and Century Aluminum (NASDAQ: CENX) from Underperform to Neutral and raised the respective price objectives from $9.50 and $9 to $14.

Tanners began the note by noting that the Midwest has placed a higher sustained premium on aluminum than the firm had previously expected. This has caused Tanners and her team to raise their 2014 premia forecasts from$0.13/lb to $0.16/lb.

The commodity team at Bank of America believed the premium on aluminum would ease due to 1) LME rule changes, 2) Improving weather conditions and transportation, and 3) Higher interest rates deterring current warehouse arrangements.

Although the team noted these may possibly still occur, they acknowledged that closures in the global smelting capacity and enduring transportation difficulties, as well as better-than-expected investor enthusiasm towards the shift from automakers to incorporate more aluminum have "helped the premium stick."

Looking forward the team is forecasting a better global supply and demand model for aluminum, less risk of excess inventory and a more long-term demand in light-weighting.

Monday's note contained the following stock ratings and price objectives:

  • Aloca, Neutral; $14.00
  • Century Aluminum, Neutral; $14.00
  • Noranda Aluminum Holding (NYSE: NOR), Underperform; $3.00
  • Kaiser Aluminum (NASDAQ: KALU), Buy; $73.00

Tanners and the team at Bank of America continue to see Kaiser as the best name in the sector based on its ability to benefit from increased downstream demand.

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