Supply gap supports aluminum price hike, UBS raises CHINAHONGQIAO (01378) target price to 38.6 Hong Kong dollars.

UBS released a research report pointing out that CHINAHONGQIAO (01378), as a leading company in the industry, is expected to continue to benefit in an environment of restricted supply and improving prices. Based on higher aluminum price forecasts, UBS has raised Hongqiao's forecasted net profit for 2026 by 11% and for 2027 by 16%. The bank reiterates a "buy" rating for CHINAHONGQIAO (01378) and has raised the target price from HK$28 to HK$38.6. Restricted supply becomes a key factor, with the supply-demand gap continuing to widen UBS's global metals and mining team estimates that the annual growth rate of global primary aluminum demand from 2026 to 2027 will be maintained at 4%, while supply growth on the supply side will only be 1%-2%, leading to a possible shortage in the market and driving down visible inventories, providing strong support for aluminum prices. Specifically, domestic aluminum industry production capacity is strictly controlled by policies, with an upper limit locked at 45.2 million tons per year. The current capacity utilization rate has exceeded 98%, approaching the policy red line. In terms of new production capacity, in 2026, only Tianshan Aluminum Group's 200,000-ton/year expansion project and Zalute Banner's 350,000-ton/year new project are planned to be put into production, with no new capacity planned for 2027. In the overseas market, the main supply increment is concentrated in Indonesia, but due to the possible reduction in some projects, the global primary aluminum supply growth rate is expected to be only 1%-2% from 2026 to 2027. Meanwhile, global aluminum demand is expected to maintain an annual growth rate of 4% during the same period, indicating a further widening of the global aluminum market supply-demand gap. Aluminum price forecasts are also raised, with copper price increases driving aluminum substitution demand Based on the core judgment of tight supply and demand, UBS has raised its aluminum price forecasts for the next two years: Chinese aluminum price forecast for 2026 increased by 5% to 22,000 yuan/ton, and for 2027 increased by 7% to 23,000 yuan/ton; London Metal Exchange aluminum price forecast was also raised by about 15%, mainly benefiting from the increase in aluminum substitution demand triggered by the rise in copper prices.