HONG KONG, May 14 -- A recent freefall in aluminium prices and China's policies to cool a red-hot property market have dented aluminium makers' shares, pushing them down by as much as a quarter this year.

That sell-off could be a buying opportunity for investors who reckon a global economic recovery could boost demand at producers such as UC RUSAL (0486.HK: Quote) (RUAL.PA: Quote), Aluminum Corp of China (Chalco) (601600.SS: Quote) (2600.HK: Quote) and Alcoa (AA.N: Quote).

Aluminium prices MAL3 fell 16 percent from mid-April to a 3-month low of $$2,056 a tonne this week, but are still 28 percent above last year's average $1,671. Analysts expect the average price to stay above $2,000 this year.

Still, Europe's debt crisis, aluminium oversupply and higher bauxite and power costs could put a lid on profits at makers of the lightweight metal widely used in the building, autos, aviation and packaging industries.

RISING DEMAND, LOW VALUATION

Robust aluminium prices helped return big producers to profit in the first quarter, and the outlook is positive as economic recovery should drive short-term demand and emerging market demand will support longer-term growth.

"Chalco definitely will be profitable this year and some low-cost, small aluminium makers such as Shandong Nanshan Aluminium (600219.SS: Quote) will see an even bigger improvement," said Wei Xiaoshuang, analyst at CM-CCS Securities.

Chalco shares are down 16 percent this year in Hong Kong, lagging a 6.6 percent drop on the broader market .HSI, and Alcoa has lost 23 percent. RUSAL's Hong Kong-listed shares closed Thursday almost 24 percent below their January IPO price.

"Chalco will be a good buy when the market stablises, as demand for aluminium in China will continue to grow and the stock is trading at a discount to other non-ferrous metal stocks," said Fan Guohe, an analyst at Phillip Securities (HK) Ltd.

CRU, a leading mining and metals consultancy, projects China's aluminium demand will grow 16.8 percent this year versus 9.7 percent for the rest of the world.

OVERSUPPLY OVERHANG

Concerns about oversupply remain the biggest downer for a highly cyclical industry.

"Given the current high (aluminium) price, more supply will come onstream and depress the upside of earnings of aluminium makers, while demand is still struggling, growing slowly," said Teresa Chow, a fund manager at RBC Investment Management (Asia) Ltd, who manages $1 billion worth of assets in Asia.

The China Nonferrous Metals Industry Association sees aluminium output in China, the world's largest maker and consumer, rising 15 percent to over 15 million tonnes in 2010.

But that growth could slow once Beijing's measures to support consolidation and cool the domestic property market kick in.

"In terms of valuation, they're not excessive. But investing in commodity stocks, you'd better look at supply and demand rather than just the valuation," Chow said. "At the moment, I find other metal stocks more interesting."

Alfred Chan, chief dealer at Cheer Pearl Investment, also cited oversupply as his biggest concern.

"Any rebound in share prices is going to be temporary because aluminium demand is not growing as fast as the government wants."