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Investing.com - Jefferies downgraded South32 (OTC:SOUHY) Limited (ASX:S32) (OTC:SHTLF) from Buy to Hold and lowered its price target to AUD3.20 from AUD3.40 on Monday.
The downgrade reflects Jefferies’ concerns about potential pressure on South32’s aluminium business due to supply chain developments in Indonesia, which may undermine the price floor previously established by China’s smelting cap.
Jefferies noted that the Indonesian aluminium supply chain build-out could dilute South32’s integrated cost advantage, negatively impacting pricing and realizations for the company’s aluminium operations.
The firm also highlighted that South32’s GEMCO operation is returning to what it described as "a crowded supply market," which could adversely affect price realizations in the near term.
Without supply rationalization or demand stimulus, Jefferies anticipates medium-term margin pressure for South32’s Aluminium and Manganese divisions, contributing to the more cautious outlook on the stock.
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