(Bloomberg) -- China’s aluminum sector has been oversupplied and unloved by investors for years. The biggest-ever rally in the nation’s top smelter is flipping that assumption on its head.Aluminum Corp. of China Ltd., or Chalco, rose a spirited 80% in Hong Kong in November, its best month since its debut almost two decades ago, as equities and metals prices took heart from China’s V-shaped economic rebound and euphoria that a vaccine could soon put an end to the pandemic.But the extra jolt enjoyed by Chalco and its peers suggests a deeper shift in the industry as concerns around overcapacity and high production costs begin to abate. Even after such a sharp advance, some analysts think Chinese aluminum stocks are still worth buying.“Aluminum stocks are spiking with aluminum prices, which are continuing their ascent amid the economic recovery,” Dai Ming, a portfolio manager at Hengsheng Asset Management Co., said last week.Undoubtedly, producers like Chalco are well-placed to thrive in a recovery where consumption is being driven by spending on infrastructure, property and autos, all of which rely to some degree on the light-weight metal. Global aluminum demand may grow 2% in 2021, led by China, after slipping 3% this year, according to Bloomberg Intelligence.Beyond that, China’s policy of limiting capacity by retiring old plants for new may be starting to bear fruit. While that’s not immediately apparent from ever-expanding output in the world’s biggest producer of the metal, it does mean smelters are now far more cost-effective.Chalco is among the metals stocks, which also include steel and copper producers, favored by Citigroup, according to a note last week. Analyst Jack Shang cited better demand, low stockpiles, slower-than-expected capacity additions and reduced costs.The bank has raised its 12-month target price to HK$4.37 from $HK3.25. Over at Morgan Stanley, analyst Rachel Zhang on Sunday upgraded her recommendation to overweight and assigned a target price of HK$3.50. The stock last traded at HK$3.05.Boffa BauxiteThe state-owned smelter’s efforts to relocate to lower-cost regions and ramp up feedstock production at its Boffa bauxite mine in Guinea should help profitability, said Citi’s Shang.Margins in the sector broadly have dramatically improved as aluminum prices have risen to a two-year high in London at the same time as the cost of alumina, the metal’s intermediate, powdered form, has slumped. Aluminum may rise further in the near term due to strong demand and a supportive macroeconomic backdrop, before falling to better reflect global oversupply, according to a note from Morgan Stanley analysts including Susan Bates.The industry’s profit margin has now exceeded 2,000 yuan ($304) a ton, a level last seen in 2017 after a national capacity cull, Wu Huayu, an analyst at Guotai Junan Securities Co., said in a report on Nov. 22. High margins should be sustainable given the weakness in alumina, he said.On Chalco in particular, though, there is some caution. Yang Ruyi, a partner at Ningbo Chasestone Asset Management Co., said she doesn’t recommend buying the stock because of valuation risks. The producer’s PE ratio based on blended forward earnings has leaped to 35, more than 40% above its five-year average.Chalco declined to comment on its operations and shares when contacted by Bloomberg News.Guotai Junan’s Wu said he favors Yunnan Aluminum Co., which could have 50% upside on its stock given its location in a province with the abundant hydro-power necessary to run its smelters. Yunnan Aluminum’s PE ratio is 25, matching its five-year average.(Updates with Morgan Stanley comments in 10th paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
The way I see it, gold traders are looking for a value area. The current move is similar to what took place in the crude oil market about a month ago.
(Bloomberg) -- Copper powered to a seven-year high as the rush for growth played out in metals markets, with traditional haven gold dropping amid growing optimism for an end to the coronavirus pandemic.Bullion extended its slide below $1,800 an ounce and copper added to a four-week surge on the back of Moderna Inc.’s announcement that it plans to request clearance for its coronavirus shot in the U.S. and Europe. The moves accelerate a pivot into risk assets in November, with global stocks heading for a record month.“Robust price rallies in industrial commodities like copper point to an ongoing rotation from a risk-averse to risk-on asset market regime,” Citigroup Inc. analysts including Aakash Doshi said in an emailed note. Gold faces a “more uncertain path in 2021” as global growth prospects improve, they said.The latest boost for risk appetite came during last weekend, when top U.S. health officials said a vaccine will probably be deployed across the U.S. before the end of the year. Elsewhere, an index of China’s manufacturing sector rose to a three-year high on Monday and the country is taking steps to boost domestic consumption, including of autos and home appliances.“It seems that base metals want to push higher, singularly focused on strong Chinese growth and pretty much oblivious to the fact that macro conditions in the West and several other countries still remain rather lackluster, as governments continue to grapple with virus infections that they have yet to bring under control,” ED&F Man Capital Markets analyst Ed Meir said in a note. “Conditions in most base metals, particularly copper, remain quite overbought, but despite that, it seems that funds want to a make a run to the psychologically significant $8,000 mark.”Copper rose as much as 2.8% to $7,708.50 a metric ton, the highest since March 2013. The metal settled at $7,580 at 5:51 p.m. in London and posted the biggest monthly gain since 2016.Gold fell 0.4% to $1,780.73 an ounce and is on track for a fourth straight monthly loss. Bullion for February delivery fell 0.4% to settle at $1,780.90 an ounce. Silver gained 0.4%.Bullion is suffering as investors reverse this year’s hunt for havens amid deep economic ruptures and a fractious U.S. general election. But other factors that favor gold -- ultra-dovish monetary policy and the risk of steeper inflation -- remain in place.“The current weakness of gold is all the more remarkable given that the U.S. dollar is likewise weak,” Carsten Fritsch, an analyst at Commerzbank AG, said in an emailed note. “After the price fell below the support level at $1,800 on Friday, the technical picture became even more gloomy, which no doubt has prompted further short-term-oriented investors to withdraw.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.