What happened
Century Aluminum (CENX -3.05%) stock shot up Monday morning and was trading up 10.1% as of 1:55 p.m. ET. Shares of a rival company just received a massive price target upgrade from an analyst, and some of the reasons behind it are applicable to Century Aluminum as well.
So what
On Monday morning, Argus analyst David Coleman raised his price target on Alcoa (AA -1.75%) from $68 a share to $95 per share, according to TheFly.com. Aside from Alcoa's broad footprint in the aluminum industry and its strengthening balance sheet, Coleman expects the recent developments in China and Russia, as well as rising aluminum prices, to work in the company's favor.
The thing is, rising aluminum prices should benefit Century Aluminum as well, given that it's among the world's largest producers of primary aluminum -- i.e., aluminum produced directly from mined ore.
In fact, there's a lot brewing in the global aluminum market right now.
Image source: Getty Images.
Demand for the metal is soaring as industries like electric vehicles and solar energy heat up. The aluminum industry, though, is staring at a supply crunch.
Also on Monday morning, the International Aluminium Institute (IAI) reported that global output of primary aluminum was 5.114 million tons in February, down about 2% year over year.
While the IAI's latest data reflects a fall in supply, another major development is what's really sending aluminum stocks higher.
At a press conference on Sunday, Australia's Prime Minister Scott Morrison expressed anger over Russia's invasion of Ukraine, and said it "must pay a very high price for its brutality." Accordingly, Australia will "impose high costs" on Russia. Among them, it is strengthening its sanctions, and banning all export of alumina and aluminum ores like bauxite to Russia -- effective immediately.
Those ores are essential to produce aluminum, and Australia is by far the world's top exporter of alumina. Russia, meanwhile, is the world's second-largest supplier of aluminum. Any drop in the production and supply of Russian aluminum, therefore, could further hit global supply and send prices of the metal even higher.
Now what
Aluminum prices hit record highs in early March and are expected to remain high in the wake of Australia's move to ban raw material exports to Russia. Higher aluminum prices are exactly what Century Aluminum needs to grow its top line right now, and that's what investors are betting it will get.
