Deutsche Bank Downgrades Norsk Hydro Amid Signs Aluminum Rally May Be Topping Out

Deutsche Bank recently adjusted its stance on Norsk Hydro, moving from a buy rating down to hold while paradoxically lifting its price target to NOK100 from NOK88. This comes as Norsk Hydro's shares pushed to an all-time high with a sharp rally fueled by soaring aluminum prices.

Shares closed at NOK107.60, having doubled over the past year and surged about 40% this year alone. Analyst Liam Fitzpatrick noted the firm's long-term optimism was tempered by an acknowledgment that recent price jumps have pushed valuations to a point that reflects aluminum prices beyond sustainable levels.

Deutsche Bank suggests the current share price assumes aluminum prices in the $3,200-$3,400 per tonne range, overshooting incentive price levels and drastically exceeding marginal production costs. This implies a market stretched thin, with limited upside without a fundamental shift.

Looking at supply concerns, the bank flagged that any delay in restoring alumina flows, especially from the Middle East region, could prop up aluminum prices further, temporarily pushing Norsk Hydro's EBITDA close to record NOK11 billion levels seen in Q2 2022. Yet, extended geopolitical conflicts threaten demand by unsettling global industrial activities.

The firm's base assumption forecasts a partial supply recovery by the end of this year and expects a fuller normalization sometime in the second half of 2027, painting a cautious outlook for the medium term. This downgrade also aligns with Deutsche Bank's broader recalibration of metals and mining forecasts amid recent market volatility triggered by Middle East tensions.

Alongside aluminum, copper price forecasts were revised upwards to roughly $12,800 per tonne, while iron ore predictions remain steady at $101 per tonne. Metals and mining have bounced back strongly, recuperating most ground lost during March's dip triggered by geopolitical shocks.

The overall recovery reflects renewed investor confidence in global growth prospects, tight supply conditions, and the possibility of a depreciating U.S. dollar. Even with these factors considered, Deutsche Bank flags a significant degree of uncertainty hanging over the commodities space.

Looking ahead, the market will be watching if aluminum's rally has indeed hit its ceiling or if fresh developments on supply chains and geopolitical fronts might keep the metal's price buoyant a bit longer.