EB Securities: "New three demands" are expected to counteract the decline in real estate and support the upward shift of aluminum prices.

EB SECURITIES released a research report stating that in the downstream demand structure of aluminum in 2024, the transportation and construction real estate sectors account for the highest proportions at 24.7% and 23.8% respectively. From February to May 2024, the completed area of real estate projects saw a cumulative year-on-year decline of over 20%. However, the monthly average price of aluminum rose from 18,806 yuan/ton in February 2024 to 20,784 yuan/ton in May 2024, indicating that the demand for "new three items" such as new energy vehicles, photovoltaics, and battery foils still provides strong support for aluminum prices. According to calculations, the domestic supply and demand balance of electrolytic aluminum from 2024 to 2026 is tight and improving, with surpluses of 490,000 tons, 240,000 tons, and a shortage of 350,000 tons in 2024, 2025, and 2026 respectively, suggesting that the central price of aluminum is likely to rise. In 2024, the supply bottleneck for high aluminum prices lies in bauxite resources. Although in November 2024, the average domestic aluminum price of 5,515.76 yuan/ton reached a new high for the year, the industry's operating rate did not exceed the peak in February 2019, indicating that the bottleneck is more on the mining side. Local policies in Shanxi and Henan have had a certain impact on the supply of bauxite. From January to October 2024, China's national bauxite production totaled 48.028 million tons, a year-on-year decrease of 14.39%. Due to the traditional rainy season in Guinea in September and October, the import volume of Guinean bauxite was 6.679 million tons and 7.593 million tons respectively in September and October 2024, representing a decrease of 39% and 30.7% from the high point in August 2024. China has been a net exporter of alumina for eight consecutive months, indicating that overseas alumina is also facing a shortage. In 2025, the additional supply of overseas bauxite and domestic alumina is expected to ease domestic alumina prices. According to the commodity price calculation on January 3, 2025, the cost of producing alumina using imported ore from Guinea in coastal areas is estimated at 3,683 yuan/ton, lower than the cost of producing alumina using domestic bauxite in inland areas of Henan and Shanxi, so there may be incentives for new alumina production capacity in coastal areas. According to the sensitivity analysis based on the newly invested 11.8 million tons of alumina production capacity in China in 2025, with production reaching 10%, 30%, and 50%, respectively, in order to achieve a balance between supply and demand for bauxite in China in 2025, the incremental import of bauxite needs to reach 3.7 million tons, 9.76 million tons, and 15.83 million tons in 2025, which is lower than the global additional bauxite production capacity of 53 million tons in 2025 and beyond. Considering issues such as new mines not meeting expectations, it is still necessary to track the subsequent production and landing of production, and there may be fluctuations in the process of falling alumina prices. Drawing lessons from history, alumina prices do not necessarily synchronize with electrolytic aluminum prices. Referring to power coal in 2021, alumina prices do not necessarily synchronize with electrolytic aluminum prices. In the period from November 10, 2021 to March 7, 2022, the price of electrolytic aluminum rose from 18,500 yuan/ton to 23,900 yuan/ton, an increase of 29.3%; while the price of power coal fell from 1,470 yuan/ton to 1,050 yuan/ton, a decrease of 28.6%. Similarly, from November 8 to December 16, 2024, the price of electrolytic aluminum fell from 21,700 yuan/ton to 20,100 yuan/ton; while the price of alumina in Henan rose from 5,370 yuan/ton to 5,750 yuan/ton. Attention to the premium of hydropower aluminum after electrolytic aluminum enters the carbon trading market. On September 9, 2024, the Ministry of Ecology and Environment released the "Work Plan for Covering the National Carbon Emission Trading Market for Cement, Steel, and Electrolytic Aluminum Industries (Draft for Soliciting Opinions)," which is a signal for the inclusion of electrolytic aluminum and other industries in the carbon trading market. According to Antaike, the carbon dioxide emissions per ton of electrolytic aluminum produced using thermal power are about 13 tons (11.2 tons in the power generation process and 1.8 tons in the electrolysis process), while the emissions per ton using hydropower are only 1.8 tons (only emissions in the electrolysis process). Based on the domestic carbon price of 93.07 yuan/ton on January 8, 2025, each ton of hydropower aluminum is expected to save 1,042.4 yuan in carbon tax costs. Therefore, aluminum companies with a higher proportion of hydropower will bear lower carbon taxes or may have more carbon emission trading quotas. Risks include lower-than-expected downstream demand, geopolitical risks affecting bauxite supply, excessive downward pressure on electrolytic aluminum and alumina prices, and unexpected risks associated with the inclusion of electrolytic aluminum in the carbon trading market, among others.