Aluminum Stocks Rise Amid Calls for Limits

Aluminum company shares rose Tuesday because the electricity shortage probably will limit production for years and push aluminum prices higher, analysts said.

Shares of Alcoa Inc., the largest aluminum producer, rose $1.75, or 4.7%, to $39.25. Alcan Inc. gained $4.19, or 11%, to $42.21 and Kaiser Aluminum Corp. rose 13 cents, or 3.9%, to $3.48.

The Bonneville Power Administration, a government agency that sells hydroelectric power in Washington, Oregon and Idaho, requested Monday that aluminum companies abstain from using its power for up to two years. That would cut about 5% of global supply, which may boost prices and profits for aluminum companies, analysts said.

“It’s very positive for aluminum prices,” said Michael Gambardella, an analyst at J.P Morgan & Co. who has a “buy” rating on Alcoa’s stock.

The agency asked the companies not to restart 10 smelters in Washington, Oregon and Montana until October 2003. The smelters account for about 40% of U.S. aluminum-making capacity, and together consume more electricity than the city of Seattle.

Over the last year, companies have agreed to shut down smelters to conserve energy or have been forced to curtail production because of increased electricity prices in the Northwest related to cool weather, the California energy crisis and lower water levels in the hydroelectric dams.

The extension would add to the more than 1 million metric tons of annual production already lost because of smelter shutdowns, analysts said.

“People had expected that a lot of smelter capacity would start to creep back in early next year,” said Kevin Norrish, a minerals economist at Barclays Capital. “That’s now looking very unlikely.”

The metal posted its largest price gain in three months Tuesday. Aluminum for delivery in three months rose $32, or 2.2%, to $1,520 a metric ton on the London Metal Exchange, the biggest one-day increase since Jan. 8. Prices are little changed from this time last year.

Aluminum prices may rise to $1,600 to $1,650 a ton by year-end, said Robin Bahr, an analyst at Standard Bank in London.

Aluminum probably will post the largest price gain of any base metal this year, said Peter Kettle, director of base metal research at CRU International Ltd.

Smelter reductions have been offset by falling demand because of the economic slowdown, Bahr said. Currently, global supply and demand are about evenly balanced.

That could change, especially if the U.S. economy avoids a recession, said Martin Squires, an analyst at Carr Futures in London. Continued economic growth would mean “we probably are looking for a deficit this year and next,” with production failing to keep up with demand, Squires said.

It’s unlikely that producers outside the U.S. can take up the slack created by the Northwest cuts, because there is limited excess capacity elsewhere, analysts said.

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Making a Move

Shares of Alcoa Inc. jumped almost 5% on Tuesday on concern that tight aluminum supplies will push prices higher. The shares are approaching their three-year high of $43 reached Jan. 5, 2000.

Alcoa, monthly closes and latest on the New York Stock Exchange

Tuesday: $39.25, up $1.75

Source: Bloomberg News