Recently, Morgan Stanley released a report stating that global alumina supply continues to be under pressure, with 5.9 million tons of supply currently disrupted, accounting for about 10% of global supply excluding China. In the case of continuous increase in Chinese import demand, the global alumina market is further under pressure. Overall, this will lead to a tighter supply of alumina in China and worldwide, with prices continuing to rise. Meanwhile, benefiting from the rising price of alumina, the bank maintains a "shareholding" rating for aluminum enterprise China Hongqiao (01378), with a target price raised from HKD 11.4 to HKD 15.1.

According to Morgan Stanley's report, China's bauxite supply has been disrupted due to environmental protection, mining safety management, and declining quality. From the beginning of the year to now, domestic bauxite supply has decreased by 20% year-on-year, and the expected annual bauxite output will still decrease by 8% year-on-year to about 60 million tons.

As one of the largest bauxite-consuming countries in the world, China has huge demand for bauxite. Due to continued interference with domestic bauxite, reliance on imported bauxite has continued to increase. However, long transportation distance and expensive logistics costs mean that imported bauxite lacks economic benefits for alumina producers located in inland areas, so the tight supply of domestic bauxite affects the overall alumina production in China.

Morgan Stanley predicts that China's aluminum production will increase by 5% in the first quarter, and the overall production will further increase after Yunnan resumes production, but the production of alumina did not catch up with this pace in January to April 2024, with a year-on-year growth of only 3%. Therefore, the import volumes of Chinese bauxite and alumina have increased.

Morgan Stanley's bulk commodity team pointed out that in the case of alumina, the 2024 market is currently reaching a delicate balance, and any disturbance will have an impact on the market. Rio Tinto Group's recent force majeure event has also highlighted the fragility of the current market balance, and depending on the duration of the event, the small surplus predicted by the bank in the alumina market model may also be absorbed.

In addition, with the resumption of production in Yunnan, China's aluminum production is expected to increase by about 600,000 tons this year, and there are also preliminary signs of production recovery and profit margin improvement for processing and refining companies in Europe, which may increase the demand for alumina. Long-term storage of alumina is also a challenge, which means that the buffer provided by market inventory is limited. Therefore, if there is a situation of grabbing raw materials, prices will fluctuate greatly.

Morgan Stanley believes that this may lead to alumina prices continuing to be higher than historical levels, and the probability of price soaring will also increase. Morgan Stanley predicts that alumina prices may exceed the expected average price of USD 360 per ton in the 2024 fiscal year, adding upward risk to future prospects.