EB SECURITIES: The price of alumina may have reached a turning point, and the prosperity of electrolytic aluminum is rising from the bottom. It is recommended to pay attention to CHINAHONGQIAO (01378) and others.

EB SECURITIES released a research report stating that China's increasing reliance on imported bauxite, the strategic importance of bauxite is gradually becoming apparent. If the new alumina production capacity in China and incremental imports of bauxite can gradually come into operation by 2025, it may alleviate the tightness in domestic bauxite and high alumina prices, and some of the profits from alumina will shift to electrolytic aluminum. It is recommended to pay attention to Yunnan Aluminium (000807.SZ), Henan Shenhuo Coal & Power (000933.SZ), Henan Zhongfu Industrial (600595.SH) with low domestic alumina self-sufficiency rates and hydropower and aluminum layout; Aluminum Corporation Of China (02600, 601600.SH), CHINAHONGQIAO (01378) with low aluminum ton market value, as well as integrated layout companies like Tianshan Aluminum Group (002532.SZ) and Shandong Nanshan Aluminium (600219.SH). The main points from EB SECURITIES are as follows: The bottleneck for high alumina prices in 2024 is bauxite resources. Although the average alumina price in China in November 2024 reached a new high of 5515.76 yuan/ton, the industry's operating rate has not exceeded the peak in February 2019, indicating that the bottleneck is more on the mining side. Local policies in Shanxi and Henan have had some impact on bauxite supply. From January to October 2024, China's bauxite production totaled 48.02 million tons, a year-on-year decrease of 14.39%; and due to the impact of the traditional rainy season in Guinea in September and October, bauxite imports from Guinea in September and October 2024 were 6.679 million tons and 7.593 million tons respectively, a decrease of 39% and 30.7% from the peak in August 2024. China has been a net exporter of alumina for eight consecutive months, indicating that overseas alumina is also facing a shortage. New supplies of overseas bauxite and domestic alumina in 2025 are expected to ease domestic alumina prices. According to commodity prices on January 3, 2025, the cost of producing alumina in coastal areas using imported bauxite from Guinea is estimated at 3683 yuan/ton, lower than the cost of producing alumina in inland areas of Henan and Shanxi using domestic bauxite, therefore, there may be incentives for new alumina production capacity in coastal areas. Based on the sensitive calculations of reaching 10%, 30%, and 50% production capacity of the new 11.8 million tons of alumina capacity in China in 2025, respectively, in order to achieve a balance in supply and demand for bauxite in China by 2025, domestic bauxite imports in 2025 compared to 2024 need to increase by 3.7 million tons, 9.76 million tons, and 15.83 million tons respectively, which is lower than the 53 million tons of new global bauxite production capacity in 2025 and beyond. Considering issues such as new mine development falling short of expectations, it is still necessary to track the subsequent production progress, and there may be fluctuations in alumina prices during the decline process. Taking history as a reference, alumina prices do not necessarily move in sync with electrolytic aluminum prices. Referring to the dynamics coal market in 2021, the bank believes that alumina prices do not necessarily move in sync with electrolytic aluminum prices. From November 10, 2021 to March 7, 2022, electrolytic aluminum prices rose from 18,500 yuan/ton to 23,900 yuan/ton, an increase of 29.3%; while coal prices fell from 1,470 yuan/ton to 1,050 yuan/ton, a decrease of 28.6%. Similarly, from November 8, 2024 to December 16, 2024, electrolytic aluminum prices fell from 21,700 yuan/ton to 20,100 yuan/ton; and alumina prices in Henan rose from 5,370 yuan/ton to 5,750 yuan/ton. The "New Three" demand is expected to offset the decline in real estate, supporting the upward movement of electrolytic aluminum prices. In the downstream aluminum demand structure in 2024, transportation and construction real estate accounted for the highest percentages at 24.7% and 23.8% respectively. From February to May 2024, the cumulative year-on-year decline in completed real estate areas exceeded 20%, but the monthly average aluminum price rose from 18,806 yuan/ton in February 2024 to 20,784 yuan/ton in May 2024, indicating that the demand from the "New Three": new energy vehicles, photovoltaics, battery foils, etc., still provides strong support for aluminum prices. According to the bank's calculations, the domestic electrolytic aluminum supply-demand pattern from 2024 to 2026 is tightening and improving, with surpluses of 490,000 tons, 240,000 tons, and deficits of 350,000 tons respectively in 2024, 2025, and 2026, indicating that alum prices are expected to increase. Attention should be paid to the premium of hydropower aluminum after electrolytic aluminum is included in the carbon trading market. On September 9, 2024, the Ministry of Ecology and Environment released the "Work Plan for the National Carbon Emission Rights Trading Market Covering the Cement, Iron and Steel, and Electrolytic Aluminum Industries (Draft for Soliciting Opinions)", signaling the inclusion of electrolytic aluminum and other industries in the carbon trading market. According to Antaike, the amount of CO2 emissions per ton of electrolytic aluminum produced using thermal power is about 13 tons (11.2 tons in the power generation process and 1.8 tons in the electrolysis process), while the CO2 emissions per ton of electrolytic aluminum produced using hydropower is only 1.8 tons (only from the electrolysis process). Based on a domestic carbon price of 93.07 yuan/ton on January 8, 2025, each ton of hydropower aluminum is expected to save 1042.4 yuan in carbon taxes. Therefore, aluminum companies with a higher proportion of hydropower production will bear lower carbon taxes and may have more carbon emission trading quotas.