Century Aluminum Co. (CENX), the second-largest primary aluminum producer in the United States, is benefiting from a tight aluminum supply/demand situation and rising prices. The company has expanded its production capacity last year by about 40,000 metric tons per annum to meet projected demand from places such as China, India, Russia and Brazil.
However, high customer concentration exposes CENX to the risk of attrition and a global economic slowdown to a lower realized price. We reiterate our Hold recommendation with a target price of $51 per share.
The company is a pure play aluminum producer leveraged to positive trends. Aluminum prices are rising and could increase to $1.27/lb this year. The global smelting capacity utilization rate is likely to increase to 95% in 2008. The market is likely to be tight through 2009 due to strong Chinese demand.
Consumption, as measured by kilogram per capita, is forecasted to increase from 5kg/capita in India, Brazil, Russia, and China to 20kg/capita as GDP grows in these countries. Overall demand should grow at 7% per annum for the next two years.
The company is positioned to increase production by 40% and reduce cash costs by 10%-20% vs. current output in the coming 10 years. Moreover, to meet strong demand, CENX had entered into a long-term alumina supply agreement with Glencore for the period January 2010 through December 2014.
In April 2008, the company signed a joint venture agreement with Pingguo Qiangqiang Carbon Co., Ltd. to acquire a 40% ownership interest in Baise Haohai Carbon Co., Ltd., a carbon anode and cathode facility located in south China.
Read the full analyst report on CENX
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