A research report from CICC highlights three key criteria for stock selection within the aluminum sector. First, companies with a high capacity-to-market capitalization ratio are expected to show significant earnings elasticity when aluminum prices rise. Second, firms possessing the capability to expand overseas operations are viewed as having stronger growth potential. Third, given that alumina prices are currently near cyclical lows, priority should be given to companies with high self-sufficiency in alumina, especially if capacity shutdowns occur, anti-overcapacity policies are implemented, or mining policies in Guinea cause disruptions.
Driven by a substantial increase in electrolytic aluminum prices, which has significantly improved revenue and net profit, CICC has assigned an "Outperform" rating to China Hongqiao (01378) and raised its target price to HK$47.54. The main points from CICC's analysis are as follows.
On the supply side, elasticity is decreasing while vulnerability is increasing. Domestically, production capacity has peaked. In Europe and the United States, capacity recovery is constrained by tight power supply, increasing systemic fragility. In Indonesia, capacity expansion is limited by inadequate power infrastructure. Consequently, CICC forecasts a systematic slowdown in global supply growth from 2025 to 2030, with a compound annual growth rate (CAGR) of just 1.4%.
On the demand side, the sector benefits from accommodative fiscal and monetary policies and the emergence of new demand drivers. Traditional demand is expected to receive a boost from this supportive policy environment. Meanwhile, new sectors such as energy storage, data centers (IDC), and the "new three" industries are becoming significant new engines for aluminum consumption. Additionally, demand from emerging economies overseas is supporting a new cycle of growth. CICC projects a demand CAGR of 2.3% for the 2025-2030 period.
Regarding costs, CICC anticipates a potential rebound in alumina prices driven by anti-overcapacity measures and policy risks in Guinea. The green energy transition is expected to gradually reduce the cost of green power for electrolytic aluminum production. Furthermore, weak coal demand is likely to keep energy costs low.
Chinese aluminum companies are accelerating their overseas expansion into regions such as Southeast Asia, Africa, and the Middle East, driven by domestic bauxite shortages and a cap on electrolytic aluminum capacity imposed since 2017. Firms that lead this overseas expansion are poised to build first-mover advantages by securing access to resource-rich and energy-abundant regions, granting them stronger growth profiles.
CICC is bullish on aluminum prices and expects profit margins per ton to expand, presenting a re-rating opportunity for the electrolytic aluminum sector. The bank believes the supply-demand deficit for electrolytic aluminum will continue to widen, and coupled with globally accommodative fiscal and monetary policies, aluminum prices are likely to reach new highs. With costs expected to remain subdued, profit per ton of aluminum should widen further as prices rise. Even at current price levels, the average valuation for electrolytic aluminum companies for 2026 remains around 10 times earnings, suggesting significant potential for upward revaluation during a price upcycle, with the sector poised for a potential Davis Double Play.
Recommended companies to watch include China Hongqiao, Aluminum Corporation of China, Tianshan Aluminum Group, Nanshan Aluminum, and Huatong Wire & Cable (covered jointly with the New Energy team).
Key risks include fluctuations in product prices, faster-than-expected commissioning of overseas capacity, demand falling short of expectations, and geopolitical disruptions.
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