UBS is bullish on China's aluminum industry: Supply remains tight, CHINAHONGQIAO (01378) target price raised to 38.60 Hong Kong dollars.

UBS research report indicates that the tight supply situation in the global aluminum market may continue, and Chinese related companies are expected to benefit from it. The bank reiterated a "buy" rating for CHINAHONGQIAO (01378) and raised its target price from HK$28 to HK$38.6. Supply constraints as a core support, aluminum price expectations raised again UBS Global Metals and Mining team predicts that the global primary aluminum demand growth rate will be 4% in 2026/27, while the primary aluminum supply growth rate will be 1-2%, which could push the market into a shortage situation and lead to a decline in visible inventories. UBS believes that this should support the upward trend of aluminum prices. UBS points out that the production capacity of Aluminum Corporation Of China is strictly limited to 45.2 million tons/year, with current capacity utilization exceeding 98%, approaching the policy limit. In 2026, new domestic capacity is limited, with only Tianshan Aluminum Group's 200,000 tons/year expansion and Zaluteqi's 350,000 tons/year new capacity planned to come online. In 2027, there will be no new capacity additions. Overseas, the main increments come from Indonesia, but considering that some projects may reduce production, the global primary aluminum supply growth rate for 2026-2027 is expected to be only 1%-2%. At the same time, UBS Global Metals and Mining team predicts that global aluminum demand will maintain a 4% annual growth rate during this period, and the supply-demand gap may further widen, driving visible inventories to decline and providing continuous support for rising aluminum prices. Based on the tight supply and demand situation, UBS has raised its 2026/2027 China aluminum price forecast by 5% and 7%, respectively to RMB 22,000/ton and RMB 23,000/ton. Similarly, the London Metal Exchange aluminum price forecast has been raised by about 15%, mainly due to the increase in copper prices leading to an increase in aluminum substitution demand. UBS points out that Hongqiao, as an industry leader, is expected to continue to benefit in the environment of tight supply and rising prices. Based on higher aluminum price forecasts, UBS has raised its 2026 net profit forecast for Hongqiao by 11% and its 2027 net profit forecast by 16%.