Alcoa cut at Credit Suisse as aluminum markets to gradually rebalance (NYSE:AA)

Alcoa (NYSE:AA) tumbles more than 2% in early trading Friday as Credit Suisse downgrades shares to Neutral from Outperform, after LME aluminum prices have climbed near peak levels and likely will gradually rebalance in this year’s H2.

“While we see current geopolitical events as driving lasting structural support for aluminum prices relative to the 2018 Rusal sanctions, we do believe supply/demand balances will start to normalize in H2 as trade flows are gradually realigned, off-warrant material is monetized, and smelter operating rates sharply recover in China,” Credit Suisse’s Curt Woodworth writes.

Sanctions on Rusal’s aluminum exports have been limited, the LME remains an open terminal market, and geopolitical tensions eventually will moderate, which should remove some scarcity premium out of the market, according to Woodworth.

The analyst also says Alcoa continues to deal with inflationary pressures, and capital spending should start to accelerate more meaningfully for de-carbonization targets.

Morgan Stanley also recently downgraded Alcoa shares, saying all good news has been priced in.