What happened
A Wall Street analyst is bearish on aluminum right now and says Century Aluminum(NASDAQ: CENX) is more vulnerable to a slowdown than its peers. Investors are taking the warning to heart, sending shares of Century down as much as 11% on Tuesday.
So what
It has been a tough year for aluminum prices, with the metal peaking at more than $2,600 per ton on the London Metal Exchange back in January but down near $2,100 per ton today. Demand for the metal is cyclical, and with uncertainty about global economies in the face of rising rates there is no clear reason to believe pricing will improve in the quarters to come.
That's not great news for aluminum producers including Century, a metals and mining company with operations in the U.S., Iceland, Jamaica, and the Netherlands.
On Tuesday, Wolfe Research analyst Timna Tanners downgraded Century to underperform, from peer perform, with a $6 price target. Tanners said she is growing more cautious about the next 12 months for aluminum pricing, with Wolfe now forecasting global surpluses due to soft demand.
Century's balance sheet, according to Tanners, is "more stretched" than peers and could put pressure on the company in the quarters to come.
Now what
Century's debt-to-equity ratio is about 0.562, which is considerably higher than the sub-0.2 numbers of other aluminum producers including Alcoa and Rio Tinto. It doesn't mean the company is in trouble should prices soften further, but it does mean Century has less wiggle room than some of its rivals.
Demand for aluminum will eventually bounce back, and when it does Century should benefit. But for the time being, it appears it will be difficult for this stock to outperform.
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