Ahead of the Bell: Alcoa

A run-up in the share price of aluminum maker Alcoa Inc. and an oversupply in the aluminum market coupled with insufficiently rising demand prompted an analyst Monday to downgrade the stock.

Analyst Luther Lu of FBR Capital Markets downgraded Pittsburgh-based Aloca to "Underperform" from "Market Perform."

Recent gains in the share price _ Alcoa closed at $10.76 Friday, up 68 percent since March 19 when it cut its dividend to preserve cash _ "have more than adequately priced in the potential improvements in aluminum fundamentals," Lu said in a note to investors.

Alcoa's share price has risen due to diminished liquidity concerns, improved market sentiment, rising Chinese imports and other factors, Lu said.

However, he said "demand upticks" are not enough to offset excessive inventory.

In addition, he said the aluminum market is "structurally oversupplied," as Chinese smelters are coming back on line, accompanied by higher prices and lower production costs in the form of the cost of power.

"We believe Alcoa is a great company operating in a structurally oversupplied industry, and all else being equal, we could revisit our rating when the valuation becomes more attractive," Lu said.

Alcoa shares fell 19 cents, to $10.57 in premarket trading.