Zhongjin: It is expected that the supply of aluminum will be low before rising next year, with overall incremental growth remaining limited.

Zhongjin released a research report stating that in the current uptrend of non-ferrous metals, the performance of aluminum prices is significantly lagging behind copper prices. Since the beginning of the year, the LME copper 3-month contract has risen by 27.2%, while the LME aluminum 3-month contract has only risen by 11.2%, causing the copper-aluminum price ratio to rise to 4.4. Zhongjin believes that there are two main factors behind this, one is that under the macroeconomic tailwind, copper has a stronger financial attribute, and the other is the catalyzation of global inventory imbalance brought about by the US siphon effect. However, Zhongjin believes that from a balance sheet perspective, aluminum may perform tighter than copper by 2026, and the financial attribute tailwind brought by liquidity favoring may have already been fully priced in by the market. Zhongjin judges that the cointegration relationship will not easily fail, and aluminum prices may rise to drive the copper-aluminum price ratio back towards the center. Zhongjin expects that by 2026, aluminum supply will be low before rising high, but the overall increase will still be limited; and under the constraint of power supply bottlenecks, the pace of realization of Indonesia's future electrolytic aluminum projects may be slower than expected. They maintain their supply forecast in Zhongjin's annual outlook, with a net increase of approximately 1.1 million tons of electrolytic aluminum in 2026, a year-on-year growth of 1.5%. By entering 2027, the production from the aforementioned projects will be released, potentially bringing significant supply pressure. Looking at future projects, although Indonesia's future planned capacity looks sufficient on paper, the electricity supply is not prepared for it, which may hinder the further release of Indonesia's electrolytic aluminum capacity. In the longer term, Zhongjin believes that the supply constraint of electrolytic aluminum essentially reflects the scarcity of an efficient industrial system, which is an external factor to the aluminum industry. The shortage of mining capital expenditure may be resolved by incentive pricing, a familiar pattern of supply-demand mismatch that will eventually cycle. However, the construction pace of the industrial system is not influenced by the price of electrolytic aluminum. In the long run, the supply constraint of electrolytic aluminum may be more rigid. Zhongjin says that, based on the above, the supply constraint of aluminum next year is relatively certain, while the long-term electricity bottleneck will continue to constrain the realization of capacity increases. On the demand side, benefiting from its cost-effectiveness, aluminum faces weaker downstream negative feedback, and the scenario of replacing copper with aluminum is gradually expanding to the air conditioning sector. Driven by the demand for end products, the narrative of overspending demand in the first half of the year that market concerns had previously anticipated has not materialized. From a trade perspective, the Carbon Border Adjustment Mechanism (CBAM) will slightly raise the overall cost curve for the industry. Even considering the financial attribute premium of copper and the catalyzation of the US copper siphon effect behind the current rise, Zhongjin still believes that the long-term cointegration relationship between copper and aluminum will not easily fail, and aluminum prices have a significant room for price increase, pushing the copper-aluminum price ratio back towards the center.