Finance and Economics APP learned that Debon Securities released a research report stating that Guinea, the largest importer of bauxite, saw a significant decrease in bauxite shipments from July to September 2024, which is expected to continue to impact China's alumina bauxite supply until December. According to SMM's forecast, China's new alumina production capacity reached 3.6 million tons per year in 2024, and 13.2 million tons per year in 2025. Although alumina production capacity will be concentrated in 2025, production capacity may fall short of expectations considering the limited domestic bauxite supply. On the demand side, from January to August, Yunnan's power generation was sufficient, and there may be no electricity restrictions in winter. It is expected that Yunnan's aluminum electrolysis production rate will remain high in the winter of 2024, which will have a positive impact on alumina demand.

Debon Securities' main points are as follows:

Alumina supply mainly comes from China, with insufficient supply of imported bauxite, restricting alumina supply.

According to SMM data, the global alumina production in 2023 was 0.14 billion tons, with China's alumina production in 2023 reaching 82 million tons, accounting for 58.57% of global production. The domestic alumina competition is concentrated, with the top ten enterprises accounting for 86.47% of the national production. China's bauxite is heavily dependent on imports. In September 2024, the import of alumina entered a severe undersupply stage, with a supply-demand balance of -2.5884 million tons. Alumina is an important raw material for alumina production. Once there is a shortage of alumina, it will limit the release of alumina production capacity.

In 2023, the bauxite production in Henan and Shanxi provinces in China declined and has not yet recovered to pre-decline levels. Guinea, the largest importer of bauxite, saw a significant decrease in bauxite shipments from July to September 2024, which is expected to continue to impact China's alumina bauxite supply until December. According to SMM's forecast, China's new alumina production capacity reached 3.6 million tons per year in 2024, and 13.2 million tons per year in 2025. Although alumina production capacity will be concentrated in 2025, production capacity may fall short of expectations considering the limited domestic bauxite supply.

Alumina demand side sees year-on-year growth in electrolytic aluminum production, with downstream apparent consumption still showing improvement.

China's electrolytic aluminum production has been steadily increasing. From April 2022 to September 2024, the monthly electrolytic aluminum production has achieved a month-on-month positive growth. From January to August 2024, Yunnan's power generation is sufficient, with no restrictions in winter. It is expected that Yunnan's winter electrolytic aluminum plant operating rate will remain high in 2024, which will have a favorable impact on aluminum demand. SMM forecasts that the domestic electrolytic aluminum consumption growth rate in 2024 will be around 4.7%, with continued improvement in end demand. In October 2024, the government will introduce a series of incremental policies, and it is expected that future domestic demand will continue to rise.

Alumina supply is tight, prices are breaking upwards, and there is still sufficient profit margin for electrolytic aluminum.

In the first nine months of 2024, there were 5 months with supply-demand gaps for alumina. In September, the supply-demand gap reached 0.067 million tons. Alumina prices have broken upwards. As of October 17, the alumina prices in major regions nationwide and FOB prices in Australia were maintained above 4600 RMB/ton, leading to continuous profit growth in alumina. According to SMM's electrolytic aluminum profit model on October 17, the alumina unit price was 4555.63 RMB/ton, while aluminum still had a profit of 2025.6 RMB/ton.

Investment suggestion: The supply-demand expectations for 2025 are overly pessimistic, and stock valuations may recover.

Alumina forward contracts are at a discount, with the October 2025 delivery contract price discounting spot prices by over 1600 RMB/ton. The overall aluminum sector valuation remains low. Compared to industrial metal copper, four high market cap copper companies including Zijin Mining, CMOC Group, Zangge Mining, JCHX Mining Management, and three high market cap alumina companies Tianshan Aluminum Group, Chinahongqiao, Shandong Nanshan Aluminium as of November 5, 2024 have an average PE forecast of 16.89/13.39 times for 2024-2025, while the three alumina-related companies have an average PE of 9.01/8.54 times. The market believes alumina prices may fall, but we believe alumina prices may continue to run at high levels, with key logic being the supply-side constraint on bauxite limiting new project capacity utilization rates, and the domestic policy-driven demand likely to exceed expectations.

Recommended alumina-related companies: Shandong Nanshan Aluminium (600219.SH), Chinahongqiao (01378), Tianshan Aluminum Group (002532.SZ), focus on Aluminum Corporation of China (601600.SH).

Risk warning: Bauxite supply growth exceeding expectations, unexpected recovery in bauxite imports, downstream aluminum demand not meeting expectations.