Guosen: The excess capacity of alumina will continue in the long term, and the long cycle of aluminum prices is not pessimistic.

Guosen released a research report stating that if the main producing country, Guinea, restricts exports, the scarcity of bauxite resources will become evident, and the profits of various links in the aluminum industry chain may need to be reallocated. If the supply of alumina is affected, it may force foreign electrolytic aluminum projects to slow down. After the structural reform of the supply side of the Chinese electrolytic aluminum industry in 2017, the alumina industry has been in a long-term surplus situation; looking ahead, alumina production capacity will continue to be in surplus. Although the supply growth rate is relatively large in 2027, in the longer term, there is no significant supply pressure, and the industry is not pessimistic about the price of aluminum. Guosen's main points are as follows: Bauxite: inexpensive and easily available, supply is too centralized, and the main producing countries will tighten supply The distribution of the aluminum element is widespread, with a content in the earth's crust second only to oxygen and silicon and higher than iron, with a static recoverable period of 66 years, far higher than most non-ferrous metals. Bauxite reserves are highly concentrated, with the top 5 countries including Guinea, Australia, Vietnam, Brazil, and Jamaica accounting for 72% of global reserves. China's dependence on bauxite imports is close to 80%, and it is highly reliant on Guinea. If Guinea restricts bauxite exports, the scarcity of bauxite resources will become evident, and profits in various links of the aluminum industry chain may need to be reallocated; if the supply of alumina is affected, it may force foreign electrolytic aluminum projects to slow down. After the structural reform of the Chinese electrolytic aluminum industry in 2017, the alumina industry is in a long-term surplus, which is difficult to encroach on electrolytic aluminum profits. After the structural reform of the Chinese electrolytic aluminum industry in 2017, the trend of disorderly and rapid expansion of electrolytic aluminum production capacity was curbed, but the alumina industry did not undergo structural reform on the supply side, and alumina production capacity continued to expand. After 2017, the alumina industry began to show a surplus situation, and the price of alumina also remained relatively weak. The ratio of alumina/electrolytic aluminum prices decreased to 15% or even close to 10%, making it difficult to encroach on the profits of the electrolytic aluminum sector. This is an important factor in the increased profits of aluminum smelting in recent years. Looking ahead, alumina production capacity will continue to be in surplus. Strict ceiling on domestic production capacity, rapid deployment of some capacity in Indonesia In recent years, with the improvement of the industry supply and demand situation, enterprises have seized historical opportunities and strived to achieve high production during the high-profit period, exploring pathways to increase production by strengthening the current. Currently, it is feasible for the current intensity to exceed the design value by 1%-2%. With the improvement of the supply and demand situation in the electrolytic aluminum industry, smelting profits have rapidly increased. Chinese enterprises have invested in building factories abroad, and foreign countries have also accelerated the progress of capacity construction. In 2026, affected by the shutdown of electrolytic aluminum production in the Middle East, global aluminum production is expected to slightly decrease year-on-year; in 2027, with the resumption of production capacity in the Middle East combined with the concentrated production in Indonesia, the global electrolytic aluminum production growth rate will reach 4.5%; in 2028, the growth rate will still be 3.2%, and in the next 5 years, the global electrolytic aluminum growth rate will be 2.3%, lower than the average annual growth rate of 2.5% during the "14th Five-Year Plan" period. The above predictions are premised on all projects being put into production as scheduled, without taking into account any disturbances. If we consider that the uncertainty of foreign production is much greater than that of domestic production, and give a discount to foreign capacity expansion, then the global aluminum supply growth rate in the next 5 years is likely to be lower than 2%. Although the supply growth rate is relatively large in 2027, in the longer term, there is no significant supply pressure, and the industry is not pessimistic about the price of aluminum. Diversified downstream demand for aluminum, steady growth The global demand for primary aluminum has had a CAGR of 4.1% over the past 15 years, with China at 6.9% and foreign countries at 1.1%; over the past 10 years, the global demand for primary aluminum has had a CAGR of 2.8%, with China at 4.6% and foreign countries at 0.4%. The demand for aluminum downstream is diversified and not affected by the prosperity of a single sector. Different industries downstream often fluctuate inversely, and overall demand fluctuates with the general economic prosperity. In recent years, traditional sectors such as real estate have seen a significant decline in demand, but new industries such as photovoltaics, new energy vehicles, and aluminum exports have effectively driven aluminum demand, reducing the cyclical fluctuations in demand. Comparison of electrolytic aluminum enterprises All global electrolytic aluminum enterprises use the molten salt electrolysis method to produce primary aluminum, with similar design institutes, construction units, and almost identical equipment, with little difference in process parameters. The products are bulk commodities that freely flow in the market and do not have significant discounts or premiums. The bank has compared them in terms of costs, industry chain support, tax rates, dividends, etc. Related targets: Aluminum Corporation Of China, CHINAHONGQIAO, Shandong Hongqiao Aluminum Industry Holding, Yunnan Aluminium, Henan Shenhuo Coal & Power, Tianshan Aluminum Group, Shandong Nanshan Aluminium, Henan Zhongfu Industrial, CHUANGXIN IND, Xinjiang Joinworld, JiaoZuo Wanfang Aluminum Manufacturing Risks: risk of substitution of other materials; risk of large-scale commissioning of foreign electrolytic aluminum production capacity; risk of interest rate hikes by the Federal Reserve surpassing expectations; risks such as price increases in costs such as petroleum coke prices and electricity prices.