Orient: Electrolytic aluminum prices are expected to maintain their upward trend. The cost advantage of the entire industry chain is the core competitiveness.

Orient released a research report stating that, in terms of prices, as aluminum ingot inventories continue to decrease, the price of electrolytic aluminum is expected to maintain an upward trend, leading companies may show higher profit elasticity; in terms of costs, the market has already anticipated the cost optimization resulting from this year's decline in alumina prices. However, the long-term maintenance of low alumina prices in an oversupply situation poses a pricing inadequacy in ensuring the longer-term cost advantage and profit stability of electrolytic aluminum companies. The electrolytic aluminum sector is expected to achieve higher dividends in the longer term. In the long term, the cost advantages throughout the industry chain are the core competitiveness of electrolytic aluminum companies. The main points of Orient are as follows: Domestic capacity growth is almost non-existent, with limited impact from overseas increments On the domestic supply side, from the beginning of the year to now, the total domestic electrolytic aluminum production capacity has net increased by zero compared to the end of last year. The current projects under construction mainly focus on capacity replacement, with a net increase of 450,000 tons accounting for about 1%. This current situation of almost non-existent capacity growth domestically, along with the industry capacity utilization rate gradually approaching the limit, has led to the deepening of the concept of strong supply constraints. As for the overseas supply side, although there are many projects planned in the medium term, the actual production volume may be significantly better than market expectations due to the strict energy conditions for supporting infrastructure and electrolytic aluminum production itself. Furthermore, due to the comprehensive import cost inversion and the business model of exporting high-end aluminum processing domestically, the actual impact of overseas electrolytic aluminum production on the domestic supply-demand situation is limited. Overall demand is stable with growth, and there are highlights in emerging fields On the downstream demand side, based on the growth rates of various terminal areas of electrolytic aluminum in the first half of this year, the bank has adjusted the full-year demand forecast for 2025. Benefiting from the robust production and sales of new energy vehicles and high investments in emerging power sectors such as UHV, electrolytic aluminum demand is expected to maintain a growth of above 1.5% in 2025. Looking ahead to next year, the bank has also conducted sensitivity analysis on the future demand of the photovoltaic industry that the market is concerned about. Through calculations, the bank believes that if the demand growth rate of the photovoltaic industry next year is not less than -21%, then the total demand for electrolytic aluminum is expected to maintain positive growth, and the industry as a whole remains in a tight supply-demand situation. In addition, through analyzing the real export demand for electrolytic aluminum, the bank believes that the biggest focus of the industry next year is the demand support brought by the fiscal expansion in overseas countries. Raw material costs are fluctuating downward, and production profits tend to stabilize On the upstream cost side, this year's situation of aluminum ore imports has significantly improved compared to last year, and with continuous rise in port inventories, the raw material costs for electrolytic aluminum have been fluctuating downward. Although earlier, when alumina prices fell below the industry's cash cost, some companies temporarily raised the prices of raw materials, following the recovery of profitability in alumina companies and the continuous implementation of alumina projects both domestically and overseas, alumina prices are expected to return to a downward trend and may remain low in the medium term. In terms of profits, in the first half of the year, electrolytic aluminum production profits have been restored with the decline in alumina prices. From the perspective of the past few years, although aluminum prices and production profits have fluctuated, the proportion of production profits to aluminum prices as a whole has gradually stabilized. Additionally, the impact of a slight increase in alumina prices on electrolytic aluminum profits is relatively small. The market's expectations for stable profitability in the electrolytic aluminum industry are expected to further strengthen. Liability situation gradually improving, dividend level steadily increasing With the substantial growth in operational profits and cash flow of electrolytic aluminum companies, the asset-liability situation has significantly improved. Moreover, due to the low intensity of future capital expenditures in the industry, the ability and willingness of listed companies to return dividends to shareholders have also greatly increased. The bank calculated that the dividend payout ratio of the leading company in the electrolytic aluminum industry, CHINAHONGQIAO, has increased to 67%, with an expected dividend yield of 8% for this year. The dividend payout ratios of other companies are between 30% and 40%, with Tianshan Aluminum Group having a dividend yield of around 5%, which is more attractive compared to other dividend-yielding assets. Risk warning Slowdown in domestic macroeconomic growth; impact of factors such as tariffs on export demand and industry chain stability; fluctuation in raw material prices; risks from changes in assumptions and omissions in capacity statistics affecting calculation results.