Equity research firm Cowen and Company reduced its Century Aluminum price target to $10 from $13 due to changes in the aluminum futures curve, the company said in a statement Tuesday. The company also said it assumed Q4 2013 and fiscal year 2014 aluminum prices of $0.81/lb and $0.86/lb, respectively, which is consistent with the futures curve.
Going into the quarter, Cowen said it prefers companies "with downstream exposure as depressed LME prices and weakening premiums are likely to pressure upstream operations." The company maintained its price target for Kaiser Aluminum at $80 and Alcoa's price target at $10.
Weak LME prices continue to hurt upstream operations, the company said, pointing to the average LME price decline of 3.5% quarter over quarter. Also challenging the aluminum market is the potential release of more LME warehouse inventories to reduce lead times, which could and has pressured premiums downward. The Platts Transaction premium has declined to 9.8 cents/lb plus LME cash from an all-time high of 11.85 cents two months ago.
Cowen said the aerospace and automotive aluminum end markets will be the primary drivers of the industry over the next decade. The US automotive industry in particular has accelerated in recent months, causing auto sales to rise above pre-recession levels for the first time, the company said. Auto sales in August were 1.5 million, making the seasonally adjusted annual industry sales rate 16.09 million, surpassing December 2007's 16 million and up from 14.49 million from a year ago.
