CITIC Construction Investment: Intensive overseas expansion changes the pattern of the aluminum industry, and the consumer side generally continues to grow

The Zhitong Finance App learned that CITIC Construction Investment released a research report saying that when aluminum prices stabilized in the 23,000-25,000 yuan/ton range, concerns about high profits inducing accelerated overseas production continued to rise. Over time, overseas construction projects have successively fulfilled their launch plans, compounded by the recovery of production capacity that was shut down during the US-Iran conflict in the Middle East, and the world's electrolytic aluminum has reached a stage of annual growth of more than 3 million tons. Demand for new industries on the consumer side has emerged, effectively offsetting the lack of traditional consumption, and overall growth has continued. Due to the expansion and supplementation of overseas supply, the global supply and demand pattern is shifting from tight balance to gradual easing, and profits in the aluminum industry are also being squeezed. However, the contraction in industry profits will reverse the long-term expansion of overseas production. Therefore, in the absence of a benchmark of economic recession, the decline in aluminum prices is not smooth and space is limited.

CITIC Construction Investment's main views are as follows:

Overseas markets have entered an intensive marketing period, changing the pattern of limited supply

As of September 2026, China's electrolytic aluminum production capacity reached 45.48 million tons. With the addition of 169,000 tons of additional production capacity in Shanxi Zhaofeng and 110,000 tons of Haiyuan Green Energy, China's electrolytic aluminum production capacity has actually peaked. Domestic electrolytic aluminum production in 2027-2029 was 45.74 million tons, 45.89 million tons, and 45.9 million tons, respectively, with little increase. In 2026, the Middle East reduced production capacity by 2.86 million tons and lost production by 1.85 million tons, offsetting new overseas investment and new increases in China, resulting in a rare low growth rate of 0.3% in global production. The pace of resumption of production in the Middle East slightly exceeded expectations. Combined with additional overseas production capacity, overseas production is expected to increase by 3.45 million tons, 2.8 million tons, and 2.5 million tons respectively from 2027 to 2029. Global aluminum supply in 2027-2029 was 78.51 million tons, 81.47 million tons, and 83.98 million tons, respectively, with year-on-year growth rates of 3.8%, 3.1%, and 2.5%.

Consumption in the sector has entered a low wave state, and a resilient economy is building a relatively stable increase in demand

In 2026, sector consumption returned to a state of great expansion. Photovoltaics and real estate fell sharply, and exports, energy storage, and transportation grew rapidly, once again rewriting the downstream consumer weight map. With the end of the one-time impact of photovoltaics, real estate has entered a low base, and the domestic downstream has also entered a state of low volatility. The compound domestic growth rate over the next three years is about 1.8%. Demand from emerging economies remains high, and the manufacturing industry in developed economies in Europe and the US is also expanding, driving overseas consumption growth. Global aluminum consumption in 2027-2029 is expected to be 77.77 million tons, 79.78 million tons, and 81.56 million tons, respectively, with year-on-year growth rates of 2.6%, 2.6%, and 2.2%.

Prices fall or lag, equity pricing is too pessimistic, and contains phased investment opportunities

In 2026-2029, the balance between global aluminum supply and demand was -980,000 tons, 740,000 tons, 1.69 million tons, and 2.41 million tons, respectively. Despite the shift in supply and demand from a gap to excess, without a benchmark situation of economic recession, it is believed that the focus of aluminum prices in 2027-2029 will be 21,500/20000/18,700 yuan/ton. The main consideration is that global inventory levels are too low, which is conducive to short-term prices dragging down forward prices, and that the downward pressure on aluminum prices will affect enthusiasm for long-term production to ease long-term excess pressure.

The equity side included the forward surplus of electrolytic aluminum from Q2 2026, to the point that the PE corresponding to the current aluminum price of 23,000 yuan/ton in the mainstream aluminum standard is only 7 times; based on the 20,000 yuan/ton aluminum price, some individual stocks have dividends above 4%. The current pessimistic valuation of equity over the long term is sufficient, and regardless of the improvement in aluminum companies' balance sheets and free cash flow, there is room for improvement in dividends. Amidst pessimistic expectations and lagging reality, there are phased investment opportunities.

risk analysis

1. The AI bubble has raised concerns about global economic growth. 2. Due to the fall in aluminum prices, the forward start of production fell short of expectations. 3. There is a risk that domestic supply will decrease. 4. Consumption fluctuated greatly, leading to major deviations in the balance between supply and demand.