CITIC Construction Investment: Electrolytic aluminum is a flexible dividend asset, and it is recommended to actively allocate

According to the Zhitong Finance APP, CITIC Construction Investment has released a research report stating that there have been frequent large withdrawal requests from LME warehouses recently, which is seen as a signal of supply-side tension, driving aluminum prices to break through the 21,000 mark. Since the beginning of this year, electrolytic aluminum has gradually been accepted by the market as a dividend asset for trading, but it is generally priced based on an average of 20,500, with PE levels typically between 8 and 10 times. The supply for 2026 and 2027 is becoming clearer, but there is still a certain gap, combined with the ample liquidity from the interest rate cut cycle, which gives aluminum prices upward elasticity. Electrolytic aluminum, which is close to the capacity ceiling, is still a cheap and elastic dividend asset, and active allocation is recommended.

The main points of CITIC Construction Investment are as follows:

Industrial Metals: This week, the price changes for LME copper, aluminum, lead, zinc, and tin were 1.7%, 3.8%, 1.6%, 3.4%, and 2.1%, respectively; the prices of industrial metals are determined by both "financial attributes" and "commodity attributes." From a financial perspective, the Federal Reserve has begun a rate-cutting cycle; from a commodity perspective, global copper and aluminum inventories are at relatively low levels, and China's economic recovery is expected, coupled with the boost from the new energy industry, the demand for copper and aluminum is expected to improve.

Electrolytic Aluminum: An Elastic Dividend Asset

(1) The rise in aluminum prices began with warehouse squeezing and ended with fundamentals. In the past two days, approximately 100,000 tons of aluminum have been requested for withdrawal from Malaysian LME warehouses, causing the available inventory for other buyers to drop from a 14-month high, which is seen as a signal of supply-side tension, driving LME aluminum prices to rise significantly on Thursday night, with SHFE aluminum also standing at the 21,000 yuan/ton mark. Consumption of electrolytic aluminum has consistently exceeded expectations this year, but the market is concerned about consumption being overdrawn and has been slow to price in the unexpected consumption. The cumulative sheet demand in the first eight months of this year has grown by 4%, and the annual consumption growth has been revised up to 2.6%. The global electrolytic aluminum gap is expected to be about 400,000 tons in 2025. Although the peak season this year has arrived late, the domestic inventory inflection point has already appeared, and the fundamentals support aluminum prices to stabilize at 21,000 yuan/ton.

(2) The global electrolytic aluminum production growth rates for 2026 and 2027 are 2.15% and 1.72%, respectively. In 2026, the new overseas electrolytic aluminum production includes an increase of 200,000 tons from Indonesia National Aluminum, the 25*2 project of Xinfeng Indonesia, which will contribute an additional 500,000 tons, CITIC Indonesia's additional 600,000 tons in 2026, which is equivalent to 300,000 tons of production, Huadong's 120,000 tons to be put into production by the end of 2025 contributing to 2026 production increase, and Vietnam's Danong with 150,000 tons of capacity to contribute 70,000 tons of production. The total production increase is 20 + 50 + 30 + 12 + 7 = 119,000 tons. Domestically, the production of 350,000 tons from State Power Investment and 150,000 tons from Tianshan Aluminum (240,000 tons of capacity) totals 500,000 tons. It is worth noting that localized power tensions overseas are threatening the normal operation of electrolytic aluminum capacity. South32 recently announced that due to years of unsuccessful negotiations with the Mozambican government over power supply agreements, the high electricity costs make it difficult to maintain operations, and it plans to shut down its aluminum plant in Mozambique after the existing power agreement expires in March 2026, reducing production by 93,000 tons in 2025 and 235,000 tons in 2027. The global new electrolytic aluminum production in 2026 is expected to be about 1.6 million tons, with a growth rate of 2.15%; in 2027, global production is expected to grow by 1.72% On the consumer side, electrolytic aluminum, with its excellent lightweight and ductility, has good penetration and extensibility in consumption, leading to its consumption performance continuously exceeding expectations. It is estimated that the consumption growth rates for 2026 and 2027 will be approximately 1.9% and 1.8%, corresponding to a supply-demand gap of 250,000 tons and 330,000 tons.

(3) Electrolytic Aluminum: A dividend asset with price elasticity. Since the beginning of this year, electrolytic aluminum has gradually been accepted by the market as a dividend asset for trading, but is generally priced based on an average price of 20,500, with PE levels typically between 8 to 10 times. The supply of electrolytic aluminum is constrained, and its lightweight characteristics ensure consumption growth. Although the supply-demand gap is not large, under the backdrop of ample liquidity, aluminum prices also gain upward elasticity. Additionally, upstream alumina is still in a capacity expansion phase, suppressing alumina prices and continuing to provide profit space for electrolytic aluminum, allowing electrolytic aluminum profits to remain at 4,000 to 5,500 yuan/ton. Electrolytic aluminum, which is close to reaching its capacity ceiling, is still a cheap dividend asset with price elasticity, and active allocation is recommended.

Risk Warning

1. A significant global economic recession leading to a cliff-like decline in consumption. The World Bank has lowered its global economic growth forecast for 2025 from 2.7% in January this year to 2.3%, with nearly 70% of economies experiencing downward adjustments. The World Bank stated that global economic growth is slowing due to trade barriers and an uncertain global policy environment. Compared to six months ago when the economy seemed to be achieving a "soft landing," the global economy is once again in turmoil. If the course is not corrected quickly, living standards may be severely impacted. Global economic data has already shown a downward trend, and if a deep recession occurs, the impact on non-ferrous metal consumption will be enormous.

2. Uncontrolled inflation in the United States, with the Federal Reserve tightening monetary policy beyond expectations, and a strong dollar suppressing equity asset prices. The U.S. is unable to effectively control inflation, leading to continuous interest rate hikes. The Federal Reserve has made significant consecutive rate hikes, but services, especially rents and wages, remain sticky, constraining the decline in inflation. If the Federal Reserve maintains high-intensity rate hikes, it will be unfavorable for non-ferrous metals priced in dollars.

3. Domestic new energy sector consumption growth is below expectations, and the real estate sector continues to be sluggish. Although policies on the real estate sales side have been loosened to varying degrees, residents' willingness to purchase remains insufficient, and the resolution of debt risks for real estate companies is progressing poorly. If sales continue to show no improvement, the completion of real estate projects may face a risk of stalling, which would be detrimental to the consumption of certain non-ferrous metals in the domestic market