Aluminium Sector_A rough start to 2025

Summary of the Aluminium Sector Equities Conference Call Industry Overview - The conference call focuses on the Aluminium Sector, particularly the dynamics of alumina and aluminum prices in China as of early 2025 [1][5]. Key Points and Arguments 1. Alumina Price Decline: - Alumina future prices have dropped over 10% since the start of 2025, currently at approximately RMB4,250, compared to an average of RMB3,800 in 2024 and RMB3,100 in 2023. This indicates an easing supply shortage due to declining demand and increased production capacity from companies like Rio Tinto [2][5]. 2. Aluminum Price Expectations: - Aluminum prices are expected to decline in the short term due to seasonality but are projected to rebound post-Chinese New Year (CNY) holiday. Factors supporting this rebound include: - Capacity ceilings in China have been reached, limiting supply growth. - Structural demand growth from renewable energy sources is anticipated to offset weaknesses in the property sector [3][5]. 3. Impact of Supply Dynamics: - The supply situation for alumina is expected to improve further, with more bauxite shipments from Guinea as the rainy season ends. This could lead to a price correction in alumina, which would benefit integrated aluminum producers [2][3]. 4. Company Fundamentals: - Integrated Chinese aluminum companies, such as Hongqiao and Chalco-H/A, are believed to have strong fundamentals. A potential share price correction during the traditional off-season could be positive for these companies [3][5]. 5. Valuation and Target Prices: - Chalco: - Current price: HKD4.41 (H-share) and RMB7.18 (A-share). - Target prices maintained at HKD6.40 and RMB10.00, implying upside potential of 45.1% and 39.3%, respectively [7]. - Hongqiao: - Current price: HKD11.10. - Target price set at HKD16.00, indicating a 44.1% upside potential [7]. Risks Identified - Potential downside risks for both Chalco and Hongqiao include: - Lower-than-expected demand from property completions. - New resources and environmental regulations leading to higher production costs. - Geopolitical risks affecting resource acquisition [7]. Additional Insights - The coal-related business contributed approximately 4% to Chalco's total revenue in 2023, with no expected increase in investment in this area as the company focuses on renewable energy and reducing coal consumption [7]. - The report emphasizes the importance of ongoing economic stimulus in China, which is expected to support aluminum demand, particularly from the renewable energy sector [3][5]. This summary encapsulates the key insights and projections regarding the aluminium sector and specific companies within it, highlighting both opportunities and risks as of early 2025.