CHALCO(SH:601600)2025-12-02 06:57Summary of Key Points from the Aluminium Sector Conference Call Industry Overview - Industry: Aluminium Sector in China - Outlook for 2026: The market is expected to experience tightening supply against resilient demand, with aluminium prices projected to rise by 6% year-on-year, indicating a constructive outlook for prices and profitability [1][19][10]. Core Insights - Supply Dynamics: - China's production ceiling limits domestic supply growth to approximately 0.5% year-on-year in 2026, while overseas supply is expected to grow by 3% [2][52]. - The aluminium market is moving towards a tighter balance due to constrained supply and modest overseas additions, with a significant reliance on secondary aluminium and imports to meet domestic demand [13][14][52]. - Unplanned disruptions, such as reduced output at Century Aluminium's Iceland smelter and potential power supply instability at South32's Mozal smelter, contribute to supply tightness [2][64]. - Demand Drivers: - Demand growth in China is anchored by the electric vehicle (EV) sector and grid investment, with EV demand expected to grow by approximately 20% in 2026 [3][33]. - Grid investment, particularly in ultra-high voltage (UHV) transmission lines, is anticipated to provide a steady source of demand for aluminium [34]. - Despite a decline in solar installation intensity, the segment still contributes significantly to overall demand [3]. Financial Performance and Recommendations - Company Ratings: - Buy ratings maintained for China Hongqiao and Chalco, with target prices raised to HKD37.40 and HKD12.30 respectively [4][10]. - China Hongqiao offers an attractive valuation with a dividend yield of approximately 7% [4]. Price and Margin Expectations - Price Projections: - SHFE aluminium prices are expected to reach RMB22,000 per ton in 2026, reflecting a 6.4% year-on-year increase, while LME prices are projected at USD2,750 per ton [15][19]. - The margin environment is expected to improve due to lower raw material costs, with stable power tariffs and adequate supply of bauxite, alumina, and carbon anodes [22][29]. Additional Insights - Structural Changes: - The aluminium market is characterized by structural supply constraints rather than cyclical fluctuations, with China's capacity capped at 45 million tons [2][52]. - The global primary aluminium demand is projected to rise by 1.8% in 2026, while supply growth is limited to 1.6% [13]. - Inventory Levels: - Low inventories in both China and the global market indicate minimal buffer against supply disruptions, reinforcing the potential for price increases [14][19]. - Long-term Trends: - The shift towards electrification and the gradual substitution of copper with aluminium in various applications are expected to support long-term demand growth [33][35]. This summary encapsulates the key points discussed in the conference call regarding the aluminium sector, highlighting the interplay between supply constraints, demand drivers, and financial performance expectations.