Prudential sees share price falls ahead for Aloca, Alcan on more competition, costs

Prudential Equity Group said Wednesday increased Chinese output and a high cost structure for aluminium producers Alcoa Inc. and Alcan Inc. could hurt the companies' stock performance in 2007.

Shares of Alcoa gave up 22 cents to close at $33.85 on the New York Stock Exchange, while Canadian rival Alcan rose 8 cents to finish at $53.20. Century Aluminium Co. added 46 cents to end at $45.97 on the Nasdaq Stock Market.

Analyst John C. Tumazos cut his rating on the industry to "Unfavorable" from "Favorable." On Tuesday, the International Aluminium Institute said China output rose 39 percent in January, up from 35 percent as previously thought, and February output grew more than 40 percent.

Tumazos slashed his rating on Alcan to "Underweight" from "Overweight" and trimmed his target price to $48 from $50. He also cut Alcoa to "Neutral Weight" from "Overweight" and lowered his target price to $38 from 441.

The analyst lifted his 2007 output expectations for China by 1.4 million metric tons to a total of 12.4 metric tons. That's up from 9.35 million metric tons produced in the country in 2006, he noted.

Manufacturing in China is still rising, while U.S. manufacturing – which has in the past used a lot of aluminium – is declining.

In addition, both Alcan and Alcoa are expected to see higher costs ahead due to the euro's appreciation and high raw material and transportation costs, Tumazos wrote in a note to clients. Meanwhile, aluminium output in other areas of the world, including the Congo region, Middle East and Venezuela, is on the rise.