Nalco shares jump amid large volumes. Here's what's driving the stock

Aluminium smelters in China's Xinjiang region were told to cut output, sending the price of the metal in Shanghai to a 13-year high, according to a report by news agency Reuters.

Xinjiang is a major smelting hub in China - the world's biggest producer and consumer of aluminium. The region accounts for almost one-fifth of the supply in China.

Analysts say hopes that production cuts may be extended to other smelters in China drove Nalco shares.

"Aluminium prices remain elevated despite weak demand from China and mounting global uncertainties as limited smelters' power consumption in China raise worries of potential shortage... Production uncertainties for the metal persist as stern environmental norms in major producer China continued to hamper smelters operating activities," said Yash Sawant, Research Associate at brokerage Angel Broking.

Aluminium prices are up over 28 percent so far in 2021. Sawant expects the metal to rise towards Rs 217 per kilogram in a month.

Brokerage Kotak Securities is particularly positive on Nalco shares, and has upgraded the stock to 'buy' from 'sell'. It has raised the fair value of the stock to Rs 100 from Rs 80. The company is expected to benefit from strong aluminium prices owing to a global deficit, it said.

Market expert Prakash Diwan sees an upside of at least 20-25-30 percent in the stock over the next 12-18 months.

"If you are convinced with the aluminium story, the idea is to straddle both sides of the business. So, Hindalco comes with a fair amount of product-specific, value-addition and geographical presence, which is far more superior to what Nalco does, but Nalco comes with cost advantages and scale in some of the pockets that are more basic. But my sense is Hindalco has seen a huge run-up thanks to the fact that aluminium cycles are slightly smoother than let us say copper or even steel," he told CNBC-TV18.

Kotak Securities is positive on aluminium as it sees the market for the metal in deficit from 2021 as against 2022 earlier, citing floods, power shortages and strict energy consumption policies. It has upgraded its aluminium price forecast by 4-9 percent to $2,500-2,450 per tonne in FY22-23.

"Given the kind of huge surges in demand for aluminium, which is likely and continuing, whether it is from automobiles or from capital goods, there is a very clear indication that Nalco is under-priced and that is exactly what the value unlocking could do," said Diwan, who suggests a buy-on-strategy for those looking to enter Nalco shares.

The stock is trading at an attractive valuation of 3.6 times, said Kotak Securities.