Commodities | May 24 2006
By Robert Rudnicki
Let’s face it, Merrill Lynch analyst Vicky Binns is rarely off the mark when it comes to commodities and resources stocks.
So investors may wish to take note of her latest call, on alumina and aluminium prices.
In Binns’ opinion, alumina prices have peaked, and are likely to "reduce significantly from that high." Nothing new under the sun here as Vicky has been making this call for a few months now.
But signs she’s correct in this view are increasing. The main supporting argument to her view is the continued growth of Chinese alumina production, up 51% year on year according to the latest data.
This rapid growth in production has begun to be felt in the aluminium sector, with even stronger aluminium production figures expected from China over the next few months, Vicky says.
While some are of the view that this is a one-off situation, Merrill Lynch couldn’t disagree more, predicting that its supply side forecasts for the current year will be beaten, implying spot prices will come under pressure as the year progresses.
She predicts there will be a 3-6 month lag before Chinese aluminium exports increase, with resulting pressure on prices.
How does this forecast impact on the investment prospects of Alumina Ltd (AWC), currently the highest recommended stock in the FN Arena universe?
The Merrill Lynch analyst doesn’t say. Merrills is one of eight leading experts in the Australian market to rate the stock a Buy, with only Aspect Huntley and GSJB Were rating it less. In an earlier update on the company, Vicky Binns already expressed her views of changing dynamics in the alumina and aluminium markets, stating she would take profits from the moment Alumina shares would trade above $8 a piece.
Alumina shares closed at $6.84 yesterday.