Citi analysts upgraded Alcoa (NYSE:AA ) stock to Buy from Neutral as they believe aluminum is the next leg of China reopening trade.

The new price target is $65 per share, up $10 from the prior $55, which reflects a more positive near-term outlook on aluminum. Citi's commodity team projects aluminum prices of $2700/t in the near term, which could eventually spike to $3000/t.

The current market price stands at around $2465/t.

"Aluminum has relatively light positioning, tends to arrive late to bull market parties, is relatively lightly positioned, and has a myriad of idiosyncratic upside risks as well as being exposed to macroeconomic- (including major credit easing and higher oil prices) and El Niño-related supply-side risks. The rolling smelter cuts from southwestern China due to power availability restrict supply response to margins," the analysts wrote in a client note.

They also note that investors seem to be more focused on copper and coal, while Alcoa looks to be "relatively out of favor."

"The current valuation is 8-9x spot EBITDA (~$1.2bn 2023E on $2,450/t) and at 4.5x on Citi’s estimate 2024 (~$2.1bn on $2,900/t). The balance sheet is strong. FCF is limited at spot, although working capital should be a tailwind. We increase our 2023 EBITDA estimate 10% to $1.5bn based on latest metals prices forecasts from Citi’s global commodities team," the analysts added.

Alcoa shares are up over 2% in pre-market Wednesday.

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