Goldman: Aluminum Looks Good; By the Way, We Own Warehouses Full of the Stuff

We expect [Alcoa] to see multiple expansion as investors gain more confidence in the demand growth for automotive aluminum sheet, growing aerospace demand, and its continued cost cutting initiative in the upstream businesses. We believe automotive aluminum will be the fastest growing market for metals over the next several years, where Alcoa has a leadingposition in the US.

Ford Motor Co. (NYSE: F) has reduced the weight of its F-150 pickup by 700 pounds using aluminum instead of steel for some body panels, and Goldman’s analyst thinks other carmakers will follow suit. That is good news for Alcoa, but it’s also good news for Goldman.

Goldman owns a Detroit-based warehouse operator, Metro International, that has been the subject of complaints from aluminum users like The Coca-Cola Co. (NYSE: KO) which filed a complaint with the London Metal Exchange (LME) in 2011 alleging that Metro brought aluminum into its warehouses and then refused to let the stuff leave, which caused delays in delivery, higher storage charges, and, ultimately, higher prices for aluminum.

Last July Goldman agreed to swap spot shipments for its warehoused aluminum after Coca-Cola and MillerCoors again complained of difficulty in getting aluminum shipped from the warehouse. In late December Goldman announced an increase of $0.03 per metric ton effective in April, from $0.48 to $0.51, to store aluminum in its warehouse.

Goldman’s shares are up more than 2% late in the day Tuesday at $164.62 in a 52-week range of $137.29 to $181.13.

Alcoa’s shares are up about 2.6% at $11.35 in a 52-week range of $7.63 to $12.32.