Goldman cuts Alcoa; resumes Freeport-McMoRan with buy

Aug 19 (Reuters) - Goldman Sachs downgraded Alcoa Inc, the largest U.S. aluminum maker, to "neutral" from "buy" on valuation, and resumed coverage of Freeport-McMoRan Copper & Gold Inc with a "buy" rating, citing a more bullish view on copper. Goldman also added Freeport-McMoRan to its conviction buy list and removed integrated oil and gas company Hess Corp. "As the world economy recovers, we believe the different supply-demand dynamics of aluminum and copper will become more transparent... with copper leading, aluminum lagging, and the correlation among the metals breaking down," Goldman said in a note to clients. Goldman said it did not see much upside to Alcoa shares, which are trading near its price target of $13. Aluminum fundamentals remain weak with inventories at historically high levels and enough excess capacity that could be brought online, limiting the rise in the metal's prices, Goldman said. Goldman, which set a target price of $90 on Freeport-McMoRan stock, said copper demand is poised to surge and, coupled with constrained supply, will lead to a sharp rise in prices. "As the largest publicly-listed copper producer in the world... we believe Freeport-McMoRan shares provide the closest thing to pure-play copper exposure," Goldman said. Goldman kept its "buy" rating on Hess, given the energy company's inexpensive valuation and its "constructive" crude oil view for 2010. Shares of Alcoa fell 4 percent to $12.38 in pre-market trade. They closed at $12.92 Tuesday on the New York Stock Exchange. Freeport-McMoRan and Hess shares were down 2 percent in trading before the bell. Shares of Freeport-McMoRan closed at $60.47, while those of Hess closed at $50.62 Tuesday on the New York Stock Exchange. (Reporting by Antonita Madonna Devotta in Bangalore; Editing by Anne Pallivathuckal)