Under tightening supply, aluminum prices soar, HSBC raises target price for CHINAHONGQIAO (01378) to 41 Hong Kong dollars.

HSBC recently released a research report stating that the global aluminum price benchmark is at a multi-year high and is expected to surpass historical records this year, mainly due to continued supply constraints. The analyst team from HSBC believes that tight aluminum market supply has become apparent, and with high capacity utilization rates and low inventory levels, the tightness will continue to intensify. HSBC stated that the aluminum market is the preferred choice for the Chinese stock materials sector, and therefore raised the target price for CHINAHONGQIAO (01378) to HK$41.00 (from the original target price of HK$37.40) and raised the target price for Aluminum Corporation Of China-H/A shares to HK$15.20/RMB 14.90 (from the original target price of HK$12.30/RMB 12.10), maintaining their "buy" optimistic rating. HSBC stated that the tightness in the aluminum market is not a prediction - it is happening: as previously forecasted in their outlook report ("2026 Outlook: Tightening Supply Meets Resilient Demand"), the fundamentals of the aluminum market were tightening at the beginning of 2026. Due to the late timing of the Chinese New Year this year, consumer spending started early, and demand remained resilient at the end of the year. Meanwhile, Chinese aluminum production is still limited by an effective capacity cap of around 45 million tons, while overseas supply growth is limited. The HSBC analyst team emphasized that this tightening balance has translated into the trend in aluminum prices. The aluminum price on the Shanghai Futures Exchange has surpassed the important threshold of RMB 23,000/ton, while the LME aluminum price on the London Metal Exchange has continued to rise above $3,000/ton, reaching a multi-year historical high, but has not yet returned to the historical peak seen in 2021/22 (approximately RMB 24,000/ton and >$3,800/ton respectively), indicating that if the situation continues or further tightens, there is still significant upside potential. However, HSBC analysts pointed out that structural supply constraints still exist: for example, in the Chinese market, capacity limits continue to restrict incremental output, and despite strong prices, HSBC believes there is little room for significant production growth. Overseas supply growth is relatively moderate and increasingly faces interruption risks. South32's Mozal aluminum plant (approximately 0.25 million tons) confirmed it would shut down in March, further tightening the supply-demand balance. Due to slow capacity restarts and limited new project commissioning, global supply flexibility remains low. These factors reinforce the HSBC analyst team's view that tight aluminum market supply is being driven comprehensively by policy and a new round of infrastructure construction cycle, which cannot be quickly solved simply by rising prices. HSBC stated that despite industry rotation, demand remains resilient: on the demand side, consumption related to electric vehicles remains strong, driven by lightweighting of cars and robust demand for batteries. Continued investment in the power grid provides a stable, multi-year source of demand. CECEP Solar Energy demand is gradually normalizing from recent peaks and remains an important contributor to aluminum demand. Demand at the building level appears to be stabilizing after years of weakness, alleviating long-standing factors weighing on the growth path of the aluminum market. Overall, the institution expects strong and resilient Chinese aluminum demand to support a tighter market balance. HSBC expects CHINAHONGQIAO to achieve further profit growth in the fourth quarter of 2025, driven by strong aluminum prices and an effective cost management system. Looking ahead, based on solid fundamentals of the aluminum market, low global inventory levels, continued investment in power grid infrastructure, and stable growth in the electric vehicle industry, HSBC maintains an optimistic outlook on the long-term profit potential of CHINAHONGQIAO, expecting a compound annual profit growth rate of around 21% from 2024 to 2027. HSBC raised the target price for CHINAHONGQIAO from HK$37.40 to HK$41.00, maintaining a "buy" rating.