Investing.com -- Norsk Hydro ASA (OL:NHY) has been downgraded by RBC Capital Markets to "sector perform" from an "outperform" rating, reflecting a reassessment of the company's performance potential amid shifting market conditions.
Shares of the aluminium and renewable energy company were down 3.2% at 09:20 ET (14:20 GMT).
The updated recommendation, disclosed in a note dated Tuesday, cites a more balanced outlook for the Norwegian aluminium producer following a period of strong share price growth and favorable commodity price trends earlier in the year.
The downgrade is rooted in expectations that aluminium prices will experience a correction in the second half of 2025.
This downgrade stems from an anticipated easing in alumina supply constraints, driven by the commissioning of new production capacities in countries like India and Indonesia.
Aluminium prices, which have risen by over 5% year-to-date, are projected to decline by 7% from current spot levels.
The reduced tightness in the alumina market and the likelihood of increased production volumes are expected to weigh on aluminium pricing, a key revenue driver for Norsk Hydro.
Additionally, while Norsk Hydro benefits from an attractive valuation and a robust cost structure that offers protection against downside risks, analysts at RBC Capital Markets have flagged the company's high correlation with aluminium prices as a vulnerability.
This, coupled with recent share price gains that outpaced its sectoral index, has contributed to a more neutral investment outlook.
The revised price target for Norsk Hydro's shares has been set at NOK 76, a slight reduction from the previous target of NOK 77.
This adjustment reflects recalibrated expectations around raw material costs and extrusion margins.
Despite the downgrade, the company remains well-positioned in terms of its environmental profile and strategic initiatives, which could provide long-term benefits as the market transitions towards greener and more sustainable solutions.
Norsk Hydro’s shares have shown notable resilience, supported by its strong positioning in the aluminium industry and strategic focus on cost efficiencies and emission reductions. However, RBC analysts now anticipate better investment opportunities in peers such as Glencore (OTC:GLNCY) and Vale, which are expected to offer higher upside potential over the coming months.
This shift in rating underscores the challenges faced by Norsk Hydro in sustaining its strong performance amidst changing market dynamics and highlights the importance of broader market factors in shaping its future trajectory.