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More Pain Ahead for Aluminum Stocks

Aluminum stocks may look cheap as the consensus expects a recovery. We're far less optimistic.

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With aluminum prices having fallen nearly 20% in 2015, consensus expectations indicate that a recovery is in store. However, we're far less optimistic, and we see more pain ahead for aluminum smelters. Our long-term aluminum price forecast of $1,440 per ton in today's dollars, or real terms, sits roughly 15% below consensus and 10% below current spot prices.

We forecast that Chinese aluminum consumption growth will decelerate from a 15% annual rate over the last decade to only a 2% annual rate through 2020. Largely due to weak demand from the construction end market--China's largest end market for aluminum--this deceleration will have a material impact on prices. China accounts for roughly half of global aluminum consumption and has been responsible for over 90% of incremental consumption over the last 10 years.

Andrew Lane does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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