The Zhitong Finance App learned that Everbright Securities released a research report saying that the introduction of emission accounting guidelines for the electrolytic aluminum industry means that the domestic electrolytic aluminum industry is getting closer to being included in the national carbon trading market. If the electrolytic aluminum industry is included in the national carbon trading market, it will bring two significant changes to the industry: 1) Thermal power aluminum companies face significant carbon tax cost pressure, and hydroelectric aluminum and recycled aluminum with lower carbon emissions will benefit significantly; 2) Aluminum companies will increase their share of green electricity use in the future and reduce aluminum consumption by tons through technological upgrades. Optimistic about investment opportunities in hydropower aluminum, recycled aluminum, and high-end pre-baked anodes.

Incident: On March 15, the Ministry of Ecology and Environment publicly solicited public comments on the aluminum smelting industry's “Enterprise Greenhouse Gas Emissions Accounting and Reporting Guidelines” and “Enterprise Greenhouse Gas Emissions Verification Technical Guidelines”.

The views of Everbright Securities are as follows:

Electrolytic aluminum is gradually being incorporated into the national carbon market.

The bank believes that the introduction of emission accounting guidelines for the electrolytic aluminum industry means that the domestic electrolytic aluminum industry is getting closer to being included in the national carbon trading market. If the electrolytic aluminum industry is included in the national carbon trading market, it will bring two significant changes to the industry: 1) Thermal power aluminum companies face significant carbon tax cost pressure, and hydroelectric aluminum and recycled aluminum with lower carbon emissions will benefit significantly; 2) Aluminum companies will increase the proportion of green electricity used in the future and will reduce the consumption of tons of aluminum electricity through technological upgrades.

The benefits of aluminum in hydropower are obvious. According to Anteco, the carbon dioxide emissions of a ton of electrolytic aluminum produced using thermal power are about 13 tons (11.2 tons in the electricity production process, 1.8 tons in the electrolysis process), while the carbon dioxide emission of a ton using hydropower is only 1.8 tons (only the electrolysis process emits carbon dioxide); according to the calculation of the domestic carbon price of 96.26 yuan/ton on April 22, 2024, each ton of hydroelectric aluminum is expected to save 1,078 yuan in carbon tax costs. As a result, aluminum companies that use a higher proportion of hydropower will bear lower carbon taxes or will have more carbon emissions trading targets.

Recycled aluminum has lower carbon emissions. According to IAI statistics, recycled aluminum has obvious energy saving and emission reduction advantages. According to IAI statistics, the carbon emissions from producing 1 ton of recycled aluminum are only 0.2 tons. In 2022, China's recycled aluminum production was 8.65 million tons, accounting for 17.7% of the total production of electrolytic aluminum and recycled aluminum. Compared with overseas, there is still a lot of room for growth. Considering domestic electrolytic aluminum production capacity restrictions and subsequent stricter carbon emissions, more companies will deploy recycled aluminum in the future.

Energy saving and emission reduction technology directions such as high-end pre-baked anodes are expected to benefit. On the one hand, aluminum companies can reduce their carbon emissions by increasing the proportion of green electricity (non-fossil energy) used; on the other hand, aluminum companies can reduce the intensity of electricity consumption per ton of aluminum during the electrolysis process by upgrading technology. Currently, the main carbon emissions from the electrolysis process come from anode consumption and anodic effects. High-quality pre-baked anodes can reduce net consumption, extend electrode change time, and reduce carbon emissions.

At the same time, carbon emissions can also be reduced through the transformation and upgrading of electrolyzers and replacement of related materials.

2021 energy consumption dual control review. In 2021, dual control of energy consumption and electricity issues continued to disrupt the release of electrolytic aluminum production capacity. According to Baichuan Yingfu statistics, during 2021, electrolytic aluminum companies have reduced production capacity by more than 3.75 million tons/year, of which production was reduced by 2.807 million tons/year due to dual control of energy consumption and shortage of electricity.

Investment advice: After electrolytic aluminum is included in the carbon trading market, thermal power aluminum will face upward cost pressure brought about by carbon emissions in the future, and the profits of green aluminum companies are expected to increase. 1) Hydropower Aluminum recommends Yunlu (000807.SZ), and focuses on Shenhuo (000933.SZ), China Hongqiao (01378), China Aluminum (601600.SH), and Zhongfu Industrial (600595.SH). 2) Reclaimed aluminum recommends Mingtai Aluminum (601677.SH), focusing on Shunbo Alloy (002996.SZ); 3) Prebaked anode faucet Suotong (603612.SH) is recommended for energy saving and emission reduction.

Risk warning: The progress of carbon emission policies in the aluminum industry falls short of the expected risk; downstream demand falls short of the expected risk.