Soochow Securities Co., Ltd.: Domestic cycle convergence combined with rising overseas costs, dividend returns become the core pricing anchor for the aluminum industry

According to the Zhitong Finance APP, Soochow Securities released a research report stating that looking ahead to 2026, the investment side suggests focusing on high-dividend targets with a high proportion of future electrolytic aluminum business, which will expand profit margins and further increase dividend ratios. 1) The firm believes that based on the ongoing global interest rate reduction cycle and the synchronized recovery of the global economy, along with different constraints on domestic and foreign supply, there is room for aluminum prices to rise. 2) The firm believes that 2025 will be a turning point year for Chinese electrolytic aluminum companies to further increase their dividend ratios, as these companies will complete the transition from cyclical stocks to dividend assets.

The main points of Soochow Securities are as follows:

From a medium to long-term perspective, the current market fully prices in the expansion of overseas electrolytic aluminum capacity and the expected contraction of aluminum companies' profitability, leading to concentrated sell-offs of electrolytic aluminum equity assets. The firm believes there are three key expectation differences.

Expectation difference one: The constraints on overseas bauxite supply are strengthening, and the "low-price supply guarantee" pattern for alumina is not stable, necessitating a "concentration premium" for integrated companies: As overseas ore production increases further and domestic alumina capacity completes its structural transformation (from inland to coastal), profits in the electrolytic aluminum industry are shifting from upstream alumina to the smelting end. However, the firm believes that with 1) Guinea announcing plans to further reduce bauxite exports to support prices; 2) the Indonesian government further adjusting mining RKAB, allowing the government to control the release of ore based on domestic alumina digestion capacity, compliance records, and resource retention goals, the rise of "national resourceism" at the mining end requires the capital market to grant integrated companies a "concentration premium."

Expectation difference two: The growth rate of overseas electrolytic aluminum supply faces pressure from electricity demand, and the upward shift in the complete cost center of overseas aluminum companies will restrict the overall capacity release pace: As a high-energy-consuming metal, new overseas aluminum plants with economic conditions typically require long-term stable low-price electricity contracts for about 10-20 years. Currently, with the rise of AI demand, data centers require a large amount of electricity and are willing to bear higher electricity prices. In February 2026, Century sold the Hawesville aluminum plant to data infrastructure company TeraWulf, transforming the high-energy-consuming aluminum plant site into an AI/HPC data center to utilize its existing large-capacity electricity. According to the firm's estimates for Q1 2026, the complete costs for Century Aluminum, Alcoa, and Alro are approximately $3,614, $3,204, and $3,010 per ton, respectively, with some centers already exceeding the current LME aluminum price level of $3,200 per ton.

Expectation difference three: The constraints on China's electrolytic aluminum capacity still hold, and aluminum companies' profitability is expected to break the cyclical cycle: In 2017, the National Development and Reform Commission, the Ministry of Industry and Information Technology, and other four ministries jointly issued the "Special Action Work Plan for Cleaning Up and Rectifying Illegal Projects in the Electrolytic Aluminum Industry," which first proposed the rigid constraint of a "45 million ton capacity ceiling" for electrolytic aluminum. The final domestic compliant capacity ceiling for electrolytic aluminum was established at 45.43 million tons/year. As of June 2026, China's electrolytic aluminum operating capacity reached 45.209 million tons, still within the constraint range. Considering that 2026 will be a peak year for the replacement of old and new capacities, some non-compliant overproduction phenomena will not exist long-term. On a global scale, the rapid release of new capacity in Indonesia and The repair of damaged production capacity in the Middle East is estimated by the bank to result in an overseas supply growth rate of approximately 11.49%/7.91% for 2027-2028, and a global supply growth rate of about 4.51%/3.31%; considering the recovery of demand in the domestic photovoltaic and automotive sectors, as well as the further recovery of global manufacturing, the estimated global demand growth rate is about 3.41%/3.38%. In 2027-2028, global supply and demand will still maintain a tight balance, and the profit margins at the smelting end in China will remain high for a long time.

From a short-term perspective, the bank still believes that based on the following three observable factors, aluminum prices have the momentum to stabilize and rise in the second half of 2026.

Factor One: The copper-aluminum price ratio has fluctuated between 2.5 and 4.5 since the supply-side reform in 2017-2018. Against the backdrop of strong supply constraints, the bank believes that the current trend of aluminum substituting copper in supply is still continuing. The current copper-aluminum price ratio (4.2) indicates that aluminum prices are more influenced by the rise in copper prices. Therefore, the electrolytic aluminum industry is expected to benefit from the demand increase brought by "aluminum replacing copper," as well as the profit barrier formed by its rigid electricity costs, providing a dual dividend.

Factor Two: With the destruction of a large amount of stable electrolytic aluminum supply capacity due to conflicts in the Middle East, as of July 24, 2026, overseas LME inventories have decreased to 275,000 tons. After excluding 95,000 tons produced after April 13, 2024, which do not meet LME delivery rules, the actual deliverable portion is less than 180,000 tons (historical low). On this basis, as of May 2026, the Midwest aluminum spot premium in the United States has reached USD 2,513/ton, the European aluminum spot premium has reached USD 620/ton, and the Japanese third-quarter aluminum ingot spot premium has risen to USD 395/ton. Meanwhile, with the adjustment of domestic aluminum prices, China's aluminum ingot social inventory has shown a rapid destocking trend in June and July (over 500,000 tons destocked since May), and global aluminum ingots have fallen to low levels, providing a foundation for aluminum prices to stabilize and rise in the second half of 2026.

Risk Warning: Intensified market competition; geopolitical risks; metal prices may not meet expectations