According to Guojin Securities, the electrolytic aluminum industry is expected to achieve record high profits, and the aluminum sector has become a quality dividend asset

LME aluminum futures rose 2.3% to $3,085.5 per ton, while LME copper futures increased 4.2% to $12,991.5 per ton. The market is favoring precious metal stocks, with last year's blue-chip "top performer" CHINAHONGQIAO (01378.HK) supported today, reaching a high of HKD 35.94 during the session, up 8.2%, and last reported at HKD 35.32, up 6.4%, with a turnover of HKD 1.541 billion. Chalco (02600.HK) rose 2.7% to HKD 13.4. Jiangxi Copper (00358.HK) increased 6.8% to HKD 45.34, and Zijin (02899.HK) rose 4.9%.

Guotai Junan Securities recently published its outlook report for the non-ferrous metals industry this year. The firm believes that supply and demand will dominate the new landscape, ushering in a new era for copper. On the supply side, long-term capital expenditure is insufficient, and the difficulty of realizing new projects is high. In the context of production recovery falling short of expectations, global copper mine supply may show zero growth or even negative growth by 2026. On the demand side, the expansion of AI computing power amplifies copper demand through the power system, and investment in the U.S. power grid is accelerating, leading to a continuous expansion of supply-demand mismatch. Against this backdrop, the global copper supply-demand gap is conservatively estimated to be about 830,000 tons by 2026, and copper prices need to rise to suppress demand to maintain balance, with the price center expected to significantly shift upward, potentially breaking through $13,000 per ton.

Regarding aluminum, Guotai Junan Securities indicates that the cost decline dividend is expected to continue in 2026. The "ceiling" of Chinese production capacity + power constraints will bring tight supply-side constraints, while "low inventory + diversified demand" is expected to exceed expectations, with a positive outlook for the continued expansion of high profits in electrolytic aluminum.

In terms of electrolytic aluminum, the firm expects aluminum prices to rise moderately today, continuously hitting new highs throughout the year. Due to the continuous rise in aluminum prices, combined with the rapid decline in alumina prices on the cost side, the profit per ton of electrolytic aluminum is expected to recover in the first half of 2025 and continue to hit new highs in the second half of 2025. The firm judges that low supply and low inventory in the electrolytic aluminum segment, along with demand expected to exceed expectations, means that aluminum prices are still likely to continue their upward trend in 2026, with the potential for continued profit expansion per ton of aluminum due to declining costs.

Tight supply-side constraints: Electricity will become the biggest constraint on supply, with the ceiling of China's supply side approaching. Overseas power shortages make it difficult to expand production, and production may be halted due to power disruptions. During China's supply-side reform, a compliance capacity "ceiling" of 45.43 million tons was established for the electrolytic aluminum industry. According to the National Bureau of Statistics, China's electrolytic aluminum output is expected to be 44 million tons in 2024, and from January to November 2025, China's electrolytic aluminum output grew by 2.4%, already nearing the "ceiling," with the capacity utilization rate reaching 99%. Future expansion will mainly rely on overseas production. The biggest bottleneck for overseas expansion is electricity. According to the International Aluminum Institute, the global average electricity consumption for electrolytic aluminum is about 14,000 kWh/ton, with North America and Oceania reaching 15,000 and 16,300 kWh/ton, respectively, making electrolytic aluminum the most electricity-intensive material globally. The end of AI is electricity, and against the backdrop of new data centers being built globally and China no longer constructing overseas coal-fired power plants, the biggest bottleneck for overseas expansion is the lack of stable and cheap electricity. SMM estimates that overseas new capacity will only be 2.12 million tons in the next three years, which is only a 2.9% increase compared to the global electrolytic aluminum output of 73 million tons in 2024 In addition, the existing electrolytic aluminum production capacity will also be threatened, as data centers have a higher tolerance for electricity prices than electrolytic aluminum. Looking ahead to 2026, China's supply is expected to peak, with limited overseas increments, and Century Aluminum has 200,000 tons of production halted. South32's Mozambique aluminum plant may face supply disruptions due to difficulties in reaching future electricity price agreements.

Global inventory levels are low: Global aluminum visible inventory (total inventory at futures exchanges) is at a historical 10-year low, and compared to 2024, it is still in a destocking phase. The rise in aluminum prices is backed by solid fundamentals and supply-demand structure.

Guojin Securities indicates that demand is expected to exceed expectations: Demand from exports, energy storage, and aluminum replacing copper is likely to exceed expectations. In terms of energy storage: Due to the dispersion of aluminum's downstream applications, the demand for energy storage has been overlooked. According to Aladdin's calculations, every 100GWh of energy storage requires 178,000 tons of aluminum. Based on the calculations from the Electric New Group, energy storage is expected to explode in 2026, with an additional 438GWh of installed capacity, bringing an additional aluminum demand of 780,000 tons, which is expected to support the growth of photovoltaics and automobiles. Aluminum replacing copper: The continuous rise in copper prices stimulates the demand for aluminum to replace copper. In the air conditioning sector, leading companies such as Midea (00300.HK) and Haier are also promoting the application of aluminum replacing copper.

For domestic electrolytic aluminum companies, due to the constraints of the supply-side ceiling, these companies' future capital expenditures will significantly decline, while profits continue to expand. The willingness to distribute dividends is also strong, making the aluminum sector a quality dividend asset