South32 shares climb on rising spot alumina price
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The news: South32 shares moved higher as Citi reiterated its 'buy' rating on the metal miner, boosted by a rising spot alumina price.
The numbers: South32 shares were up 3.5% to $3.72 by 2:20pm AEDT, making it the fourth-best performing stock across the ASX 200, as gold stocks led market gains.
Citi is 'buy' rated on South32 with a target price of $3.90. Citi analysts noted that the spot alumina price is now USD620 ($920) per tonne, up from around USD330 at the end of the 2023 calendar year. Spot alumina is now 24% of the aluminium price compared with a long run average of around 17%, they said.
The context: Citi analysts explained that costs of bauxite — the most common ore of aluminium — have been driven up due to supply concerns in Guinea. This has seen China move back to a net import position on alumina, with the price of Australian bauxite into China climbing from USD42 per tonne in early May to around USD70 per tonne.
In the local market, alumina prices have also been impacted by refinery curtailment in Western Australia and reduced output from Queensland refinery operations due to lower gas availability.
The analysts noted that while a slowdown in Chinese economic growth could inversely impact prices and South32's revenue, the miner's diversification across aluminium, alumina, manganese, nickel, silver and coal has the potential to mitigate this risk.
The source: Citi research
