Morgan Stanley Sees A Shiny Opportunity In This Metal

A recent report by Morgan Stanley makes the case for a 30 percent upside in aluminum stocks. Analysts believe that an increasing demand for aluminum from the auto and aerospace industries combined with a slowdown in worldwide production growth will create a strong opportunity for U.S. aluminum companies.

Demand

Analysts see the biggest upcoming new demand for aluminum coming from the auto industry. With fuel efficiency becoming a major focus, manufacturers are looking to universally cut back on automobile weights. According to the report, for every 3 percent decrease in automobile weight, there is a 2 percent increase in fuel efficiency.

Aluminum is 65 percent lighter than steel, so many auto manufacturers will be looking to replace any steel they can with aluminum, as long as it meets safety and performance specifications. Analysts predict that each new Ford Motor Company F F-150 will contain half a ton of aluminum.

Supply

Global production of aluminum is up about 3 percent so far in 2014, its slowest growth rate (excluding 2009) since 2001.

Analysts believe a major turning point in global aluminum production has been reached in China. Morgan Stanley believes that Chinese aluminum production growth will slow in upcoming years, partially do with an increase in domestic Chinese demand for aluminum lowering Chinese export capacity.

Stock Picks

Morgan Stanley analyst Paretosh Misra picks Alcoa Inc AA, Century Aluminum Co CENX and Constellium NV CSTM as the top stock picks in the sector. The report identifies the the rollout of the new aluminum-intensive Ford F-150 trucks as the first upcoming potential catalyst for the three stocks.