Aluminium takes off as inflation fears
and USD weakness see massive funds
flow into commodities
􀀗 Power failures in China and Africa will
result in temporary output loss, but
slower global demand should see
aluminium post a larger surplus in 2008
􀀗 We reiterate an U/W rating on Chalco,
downgrade Nalco to U/W (fr O/W), keep
Hindalco and Alumina Ltd at N
Power issues overplayed
A tale of two halves. We expect 1H08 strength in the
aluminium price to give way to price weakness in 2H08e.
Aluminium has benefited from its increased weighting in
commodity indices, higher power costs and USD weakness.
However, China’s capacity continues to grow with 19mt of
capacity anticipated by end 09e, while supply outside of
China continues to expand. We see world capacity up 10%
in 08e and expect aluminium markets to remain in surplus of
608kt in 08e (from 357kt in 07). Should the US fall into
recession, this surplus could grow by 50%.
Commodity & earnings review. We have upgraded 2008
and long-term aluminium price forecasts (+3.5% and +5%,
respectively). On its own, these are positive for earnings and
valuations. However, we have cut earnings estimates for
Hindalco, Nalco and Alumina Ltd due to recent
disappointing DecQ08 results. With Chalco due to report its
FY07 results next week, we recommend investors stay U/W
as we expect it will miss consensus estimates.

目录

Investment thesis 3
Aluminium – Power issues
overplayed 7
Chalco – Facing a squeeze 11
Nalco – Rally overdone 13
Alumina Ltd – Long term
appeal remains 15
Hindalco – Novelis still the key 17
Disclosure appendix 22
Disclaimer 26