CITIC SEC: Turning point for aluminum oxide or optimism for profit margin expansion in aluminum prices.

CITIC SEC released a research report stating that the easing supply-demand situation and catalytic events have significantly weakened aluminum oxide prices. According to SMM's calculations, as of December 2024, due to the sharp rise in aluminum oxide prices, the average profit of the electrolytic aluminum industry has dropped to a new low level since 2020 of -1383 yuan/ton. Looking forward to 2025, it is expected that with the gradual decline in aluminum oxide prices, the electrolytic aluminum prices will remain strong, and the profitability of the electrolytic aluminum industry is expected to return to the main investment theme of the aluminum sector. At the same time, improving dividends and valuation uplift will continue to drive up the investment value of the aluminum sector. optimistic about the investment opportunities in the aluminum industry profit and valuation synchronously rising trend. CITIC SEC's main points are as follows: The easing supply-demand situation and catalytic events have significantly weakened aluminum oxide prices. In terms of events, according to information from Shanghai Aladdin Biochemical Technology Co., Ltd on January 3, two large mining companies in the Boke region of Guinea that were affected by roadblocks have resumed normal transportation; two mines in the Boke region that were unable to ship due to the suspension of barges are gradually resuming operations; and aluminum oxide producers in Shanxi have recently started to restart baking furnaces, with an expected increase in production of 2700 tons/day by the end of the month. In terms of supply and demand, since December 2024, the outbound shipments of bauxite at overseas major ports and the inbound shipments at domestic major ports have continued to improve, driving the recovery of the domestic aluminum oxide/electrolytic aluminum operating capacity ratio. According to ALD, as of January 2, the total national aluminum oxide inventory reached 3.029 million tons, an increase of 19,000 tons compared to the previous month, the first cumulative increase since the second half of 2024. The easing supply-demand situation and catalytic events have suppressed the weakness in aluminum oxide prices. According to SMM, as of January 3, the average spot price of aluminum oxide in China has dropped to 5640 yuan/ton, a decrease of 2.2% from the mid-December peak, with a weekly decline of 1.4%, accelerating the decline. Due to the above factors, on January 3, the day and night trading sessions, the SHFE aluminum oxide futures prices fell by 6.7% and 3.7%, respectively, marking the largest decline since August 2024. The center of the aluminum oxide price is expected to go down in 2025. On the supply side, according to ALD's forecast, by the end of 2025, a total of 11.8 million tons of new aluminum oxide capacity is expected to be put into production in China, accounting for 11.3% of the country's built capacity. Among them, it is estimated that 3.5/2.9/0.7/3.2 million tons of capacity will be put into operation in Q1-Q4 of 2025. According to Wood Mackenzie's forecast, the increase in bauxite production in Guinea in 2025 will reach 12.71 million tons, and globally it will reach 22.02 million tons. On the demand side, the growth rate of China's electrolytic aluminum production is expected to rapidly decline. According to ALD's forecast, in 2025, China's aluminum oxide supply and demand are expected to increase by 3.1% and 1.7% to 89.17 million tons and 89.36 million tons respectively, shifting the industry's supply-demand balance from -1.68 million tons in 2024 to +10,000 tons. It is expected that the aluminum oxide price will gradually decline in 2025, with an average price range of 3500-4000 yuan/ton. With the downward supply growth rate and expected improvement in demand, the elasticity of aluminum prices can still be expected. On the supply side, according to ALD's forecast, the growth rate of domestic electrolytic aluminum production in 2025-2026 is expected to be only 1.0% and 0.6%, significantly lower than the 3.6% and 5.0% in 2023-2024. It is expected that the global growth rate of electrolytic aluminum production from 2024 to 2027 will be 3.6%/2.2%/1.7%/0.9%, with industry supply constraints expected to be significantly strengthened. On the demand side, in 2025, it is expected that China's power grid investment will remain high, the production and sales of new energy vehicles will continue to be strong, global photovoltaic installations will steadily increase, and these factors are expected to offset the impact of real estate completion and export declines. At the same time, driven by policies in industries such as real estate, the demand for electrolytic aluminum still has a high elasticity. It is estimated that the supply-demand balance of electrolytic aluminum in China in 2025 will be -150,000 tons, and the aluminum price will mainly operate in the range of 19,500-22,000 yuan/ton. Good prospects for the expansion of aluminum profit per ton, driven by dividend and valuation logic, drive up the investment value of the aluminum sector. According to SMM's calculations, as of December 2024, due to the sharp rise in aluminum oxide prices, the average profit of the electrolytic aluminum industry has dropped to a new low level since 2020 of -1383 yuan/ton. Looking forward to 2025, it is expected that with the gradual decline in aluminum oxide prices, the electrolytic aluminum prices will remain strong, and the profitability of the electrolytic aluminum industry is expected to return to the main investment theme of the aluminum sector. At the same time, improving dividends and valuation uplift will continue to drive up the investment value of the aluminum sector. optimistic about the investment opportunities in the aluminum industry profit and valuation synchronously rising trend. Risk factors: Overseas electrolytic aluminum production resumption or new production progress exceeds expectations, downstream demand growth for electrolytic aluminum falls short of expectations, China's aluminum companies' dividend ratio increases less than expected, China's aluminum companies' valuation increases less than expected.