Alcoa's stock down on fears over aluminum price

NEW YORK, Jan 5 (Reuters) - Shares in aluminum producer Alcoa Inc fell nearly 3 percent on Tuesday on analyst fears that excess aluminum inventory might hold back a rally in the metal's price this year. In afternoon trading on the New York Stock Exchange, Alcoa stock was down 2.8 percent at $16.18, even though the aluminum price, at $2,300 a tonne in London, was up from $2,266 on Monday. But analysts said the price of the metal has been supported by financing deals which have tied up London Metal Exchange stocks. "The recent rally can only be maintained as long as the huge amount of metal tied up within these deals is kept off the market," Standard Chartered said in a note. Fraser Phillips, managing director of RBC Capital Markets' global mining research, said metal prices, which have rallied since the 2008 economic downturn, might not keep rising. "Aluminum continues to labor under the weight of significant excess inventory and capacity and we expect aluminum prices to continue to suffer as a result, limiting any upside potential for the (Alcoa) share price over the next 12 months," Phillips wrote in a research note. He also said he expected only "modest" improvement over the third quarter, when Alcoa reports its fourth quarter earnings next Monday. "The outlook now depends on Alcoa's ability to continue to meet its cost-reduction targets on a timely basis, and the aluminum market outlook," he wrote. Analyst Charles Bradford, or Affiliated Research Group, said he expected Alcoa's fourth-quarter results to be "disappointing," not because of any underlying problems, but because of very high tax rates. After posting losses in the first and second quarters, Alcoa reported a small profit in the third. Analysts on average expect the company to report earnings of 7 cents per share for the fourth quarter, but a full-year 2009 loss of 66 cents, according to Thomson Reuters I/B/E/S. (Reporting by Steve James; Editing by Tim Dobbyn)