On Wednesday, JPMorgan reinstated coverage on Alcoa Corp (NYSE:AA) shares with a Neutral rating, adjusting the price target to $36 from the previous $32. The firm cited a lack of near-term catalysts for aluminum pricing, influenced by uncertain signals from China, the upcoming U.S. elections, and the beginning of a rate-cutting cycle. The new price target is set with a December 2025 horizon, reflecting a cautious outlook for the metal's pricing momentum over the next few years.
The analyst pointed out that the aluminum market is awaiting signs of increased industrial activity in China and a reduction in inventory levels to signal a potential rise in pricing, which may not materialize until well into 2025. On the topic of alumina, supply limitations have pushed prices to highs not observed since October 2018.
This comes as Alcoa is expanding its presence in the alumina market. However, even as the price of alumina has risen this month and Alcoa's stock has appreciated, the analyst questions the durability of these price levels in the medium term.
Despite the uncertain commodity pricing, JPMorgan acknowledged Alcoa's efforts to streamline its operations and achieve cost savings. These strategic moves are expected to strengthen the company's position for when market fundamentals eventually improve. The bank also noted that in the longer term, aluminum could benefit indirectly from any consistent rise in copper prices and that Alcoa's leading carbon footprint may become more valuable as the cost of carbon emissions gains prominence.
In the near term, Alcoa has been placed on JPMorgan's Positive Catalyst Watch. This is due to an anticipated decision by the end of the year regarding Alcoa's unprofitable San Ciprian complex, which could eliminate a significant burden on the company. Currently, Alcoa's shares are trading at multiples of 5.5 times and 5.9 times the 2025 spot and Bloomberg consensus estimates, respectively, according to JPMorgan's post-AWC pro forma framework.
In other recent news, Alcoa Corp, a prominent U.S. aluminum producer, has made significant strides in reshaping its portfolio. The company sold its 25.1% interest in the Ma'aden Rolling Company, part of the Ma'aden joint venture, to the Saudi Arabian Mining Company for $1.1 billion. This sale is part of Alcoa's ongoing strategy to focus on its core businesses and is expected to provide a substantial cash infusion.
In addition to this divestiture, Alcoa has completed the acquisition of joint venture partner Alumina (OTC:AWCMY) Limited. This move is anticipated to enhance its capital structure and generate significant savings, despite temporary market dynamics that resulted in a dip in share price post-acquisition. The company has also implemented a $645 million improvement program aimed at reducing costs and enhancing operations at specific sites.
Recent developments also reveal Alcoa's commitment to sustainability, with advancements in the ELYSIS green aluminum production technology. The company plans future demonstrations and trials of this technology, positioning itself as a potential leader in green aluminum production. These strategic moves underscore Alcoa's dedication to streamlining operations, strengthening its financial position, and prioritizing sustainable practices.
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