The easing supply-demand pattern combined with event catalysts has significantly weakened the price of Alumina. Looking ahead to 2025, it is expected that as the price of Alumina gradually declines and the price of electrolytic Aluminum remains strong, the profits in the electrolytic Aluminum Industry are likely to return to the main line of investment in the Aluminum Sector.
According to information from Zhitong Finance APP, CITIC SEC released a Research Report stating that the easing of the supply and demand situation combined with event catalysts has significantly weakened the price of Alumina. According to SMM's calculations, as of December 2024, due to the substantial increase in Alumina prices, the average profit in the electrolytic aluminum industry has dropped to a new low of -1383 yuan/ton since 2020. Looking ahead to 2025, it is expected that as the price of Alumina gradually decreases, the price of electrolytic aluminum will remain strong, and the profit in the electrolytic aluminum industry is likely to rebound to become the main investment focus in the Aluminum Sector. Additionally, increased dividends and elevated valuations will continue to boost the investment value of the Aluminum Sector. There is a bullish outlook for investment opportunities amid the trend of synchronously increasing profitability and valuation in the Aluminum Industry.
The main points of the Citic Securities research report are as follows:
The easing supply and demand situation combined with event catalysts has significantly weakened the price of Alumina.
In terms of events, according to Shanghai Aladdin Biochemical Technology Co.,Ltd news on January 3, two large mining companies in the Boké region of Guinea that were affected by road blockades have restored normal transportation; two mining companies in the Bofa region that could not ship due to the suspension of barge use are also gradually recovering; at the same time, Shanxi Alumina companies have recently begun to resume production of roasters, and if subsequent production is smooth, it is expected to form an increment of 2700 tons/day by the end of the month.
In terms of supply and demand, since December 2024, the outbound data of bauxite from major overseas ports and the inbound data of major domestic ports have been continuously improving, which has driven the ratio of domestic Alumina/electrolytic aluminum operating capacity to recover. According to ALD, as of January 2, the total inventory of Alumina nationwide reached 3.029 million tons, an increase of 0.019 million tons month-on-month, marking the first accumulation since the second half of 2024.
The easing supply and demand situation combined with event catalysts has suppressed the weakening of Alumina prices. According to SMM, as of January 3, the domestic spot average price of Alumina has dropped to 5640 yuan/ton, a decline of 2.2% compared to the mid-December peak, and this week alone has seen a weekly decline of 1.4%, with the rate of decline accelerating. Due to the above factors, on January 3, the daytime and night trading sessions of SHFE Alumina Futures prices fell 6.7% and 3.7%, respectively, marking the largest decline since August 2024.
In 2025, the price center of alumina is expected to decline.
In terms of supply, according to ALD's forecast, by the end of 2025, it is expected that there will be 11.8 million tons of new alumina production capacity gradually coming online in China, accounting for 11.3% of the built capacity. Among them, 350/2.9/0.7/3.2 million tons of capacity is expected to be commissioned in Q1-Q4 of 2025. According to Wood Mackenzie, the incremental bauxite production in Guinea will reach 12.71 million tons in 2025, while the global increment will reach 22.02 million tons.
In terms of demand, the growth rate of domestic electrolytic aluminum production is expected to fall rapidly. According to ALD's forecast, in 2025, the supply and demand of alumina in China are expected to grow by 3.1% and 1.7% respectively to 89.17 million tons and 89.36 million tons, shifting the industry supply-demand balance from -1.68 million tons in 2024 to +0.01 million tons. It is anticipated that the price of alumina will gradually decline, with the average price range in 2025 expected to be 3500-4000 yuan/ton.
With the growth rate of supply declining combined with expectations of improved demand, there is still potential for aluminum price elasticity.
In terms of supply, according to ALD's forecast, the growth rate of domestic electrolytic aluminum production for 2025-2026 is expected to be only 1.0% and 0.6%, significantly lower than the 3.6% and 5.0% for 2023-2024. The growth rate of global electrolytic aluminum production from 2024-2027 is anticipated to be 3.6%/2.2%/1.7%/0.9%, with industry supply constraints likely to strengthen significantly.
In terms of demand, in 2025, it is expected that domestic power grid investment will maintain high growth, the sales of Electric Vehicles are expected to remain strong, and the global photovoltaic capacity will steadily grow, which are expected to offset the impacts of real estate completions and export declines. Meanwhile, under subsequent policy promotions in the real estate and other industries, the demand for electrolytic aluminum still has high elasticity. It is projected that the balance of supply and demand for domestic electrolytic aluminum in 2025 will be -0.15 million tons, and aluminum prices will mainly operate in the range of 19500-22000 yuan/ton.
Bullish on the investment value of the aluminum sector driven by widening profits per ton of aluminum as well as dividend and valuation logic.
According to SMM's calculations, as of December 2024, due to a significant rise in alumina prices, the average profit of the electrolytic aluminum industry has fallen to -1383 yuan/ton, a new low since 2020. Looking ahead to 2025, it is expected that as alumina prices gradually decline and electrolytic aluminum prices maintain strength, profits in the electrolytic aluminum industry are likely to rebound, returning to the main line of investment in the aluminum sector. Additionally, increased dividends and elevated valuations will continue to drive the improvement in investment value of the aluminum sector. There is potential for investment opportunities under the trend of simultaneous increases in profitability and valuation within the aluminum industry.
Risk Factors
The recovery or new production progress of overseas electrolytic Aluminum exceeds expectations, while the downstream demand for electrolytic Aluminum grows less than expected. The dividend ratio of domestic Aluminum companies has increased less than expected, and the valuation of domestic Aluminum companies has also improved less than expected.
