NEW YORK Shares of aluminum producer Alcoa Inc (AA.N) dropped more than 5 percent in early trading on Tuesday, as analysts said despite strong quarterly results and a positive demand outlook, they saw little upside for aluminum prices.
Alcoa reported a first-quarter profit late on Monday, beating Wall Street estimates, although its revenue was slightly below analysts' target.
Its share price, which has risen almost 40 percent in the last six months, dropped in early trading on the New York Stock Exchange to $16.85 from Monday's close of $17.77.
"After a strong period of outperformance for both aluminum and Alcoa over the past six months, we believe that Alcoa shares are likely to trade in line with the sector over the next few quarters," analyst Curt Woodworth, of Macquarie Capital, wrote in a research
"We believe that aluminum prices have limited upside from current levels as the global market (excluding China) remains in surplus," he wrote "Chinese restarts negatively impact sentiment, physical premiums are holding steady, and the energy cost push over the past several months starts to have less incremental positive impact on the market price."
On the London Metal Exchange on Tuesday, aluminum was bid at $2,665 per tonne, down from $2,689.
Tony Robson of BMO Nesbitt Burns Inc downgraded Alcoa to "underperform" from "market perform," partly due to the share price exceeding its $15 price target.
"But mostly on expectations of a weaker aluminum price in the quarters ahead," he wrote.
But he stressed that Alcoa's first-quarter earnings "did not disappoint the markets." UBS meanwhile, raised Alcoa's share price target to $19.50 from $18.00.
(Reporting by Steve James, editing by Gerald E. McCormick)