CITIC SEC: New drivers support stable demand growth, optimistic about aluminum profit and valuation rising together.

CITIC SEC released a research report stating that in the outlook for 2026, aluminum for PV is expected to accelerate downwards, while the high prosperity of the grid and automotive sectors will continue. Growth in aluminum replacing copper in energy storage and air conditioning is expected to pick up speed, supporting the demand growth for electrolytic aluminum. At the same time, CITIC SEC believes that even with the addition of capacity in Indonesia's production background, the trend of industry supply growth slowing down is still evident, with signs of disturbance gradually emerging. CITIC SEC predicts that the center of the aluminum price in 2026 will reach 23,000 yuan/ton, and they remain optimistic about the profitability and valuation of the aluminum sector. CITIC SEC's main points are as follows: China's demand for electrolytic aluminum in 2025 maintains unexpected resilience. In a previous research report, we predicted that China's demand for electrolytic aluminum in 2025 would increase by 1.0%, with concerns mainly about a decrease in completed real estate area and a decline in exports. We currently expect China's demand for electrolytic aluminum to grow by 2.6% in 2025, exceeding our initial expectations. This is mainly due to unexpected growth in aluminum for automotive use, and a less than expected decline in aluminum for construction use. The investments in PV installations and the grid are below expectations, but there is a large unexpected increase in demand for energy storage, showing higher than expected resilience in demand since 2024. Emerging sectors are expected to support the growth momentum of demand for electrolytic aluminum. 1) Aluminum for energy storage: Global energy storage is entering a period of accelerated development. We predict an increase of 470,000 tons in aluminum used for energy storage batteries in 2026-27. 2) Air conditioning - "aluminum replacing copper": With the introduction of policies and the signing of industry self-regulation agreements, the replacement of copper with aluminum is expected to accelerate. We predict an increase of 160,000 tons in aluminum used for air conditioning in 2026-27. 3) Aluminum for the grid: The growth of China's investment in the grid is expected to accelerate. We predict an increase of 460,000 tons in aluminum used for the grid in 2026-27. 4) Aluminum for automobiles: Sales of automobiles and new energy vehicles are expected to continue to increase. We predict an increase of 330,000 tons in aluminum used for automobiles in 2026-27. 5) Aluminum for PV: We predict an increase of -650,000 to +100,000 tons in aluminum used in the PV sector in 2026-27. In 2026, aluminum used for PV may accelerate its decline, the automotive industry is expected to continue its high prosperity, the grid investment growth rate is expected to rise, and the consumption growth of aluminum used for energy storage and air conditioning is expected to accelerate, supporting the momentum of demand growth. In 2027, China's PV installations will stabilize, and investments in automobiles and the grid will continue to rise, together with the strong expectation of continued growth in energy storage and air conditioning demand, the growth rate of demand is expected to rise again. Therefore, we predict that the incremental demand for aluminum used in emerging sectors in China in 2025-27 will be 1.16 million tons, 830,000 tons, and 1.78 million tons respectively. The corresponding demand growth rates in China are 2.6%, 1.8%, and 3.8%, respectively, and the global corresponding demand growth rates are 2.9%, 2.2%, and 3.2%, indicating continued strong growth momentum. Global aluminum supply expectations have been revised upwards but the growth rate remains low. With the landing of new aluminum smelting projects in Indonesia, we have adjusted our forecasts for global aluminum production growth for the years 2025-30 to 1.69 million, 1.46 million, 1.86 million, 1.95 million, 1.70 million, and 1.09 million tons, corresponding to growth rates of 2.3%, 2.0%, 2.5%, 2.5%, 2.1%, and 1.3%, with the central growth rate reaching 2.1% for 2025-30, significantly lower than the 2.7% in 2020-24. Additionally, there is an increasing risk of disturbances in aluminum social policies, accident risks, and unique risks in electricity supply, which may become a trend. We have raised the 2026 aluminum price forecast to 23,000 yuan/ton and remain optimistic about the sector's profitability and valuation rising in tandem. Based on the supply and demand forecasts, we predict that the supply-demand balance for electrolytic aluminum in China will be -4 million tons, -29 million tons, and -82 million tons in 2025, 2026, and 2027 respectively. For the global supply-demand balance, the figures are -19 million tons, -40 million tons, and -95 million tons, showing a widening gap. Considering that industry supply and demand are better than our previous expectations, we have raised our central price forecast for aluminum in 2026 to 23,000 yuan/ton. The copper-aluminum ratio is at historic highs, and we predict the PE ratios for the Chinese copper-aluminum sector to be 12-14X and 8-10X, respectively, in 2026. Aluminum prices and valuation within the aluminum sector both have strong expectations for a rise. We are optimistic about the profitability of aluminum companies and the simultaneous rise in valuations in the sector. Risks: Risks include slower than expected growth in downstream demand for electrolytic aluminum, global construction and production of aluminum projects exceeding expectations, rising global energy costs, disturbances in mineral raw material supplies, rising prices of other raw materials, and an escalation of global trade disputes. Investment strategy: Looking ahead to 2026, we expect a rapid decline in aluminum for PV, continued high prosperity in the grid and automotive sectors, and accelerated consumption growth in energy storage and air conditioning, which will support the momentum of demand growth for electrolytic aluminum. Additionally, we believe that even with the addition of capacity in Indonesia's production background, the trend of industry supply growth slowing down is still evident, with signs of disturbance gradually emerging. We expect the aluminum price in 2026 to reach 23,000 yuan/ton and remain optimistic about the profitability and valuation of the aluminum sector rising simultaneously.