Rio Tinto declared force majeure factors on Australian alumina shipments, which catalyzed the daily limit of alumina futures. In the longer term, the resumption of production in Shanxi and Henan is still unclear, and the tight supply situation of domestic bauxite continues, and the growth rate of alumina production is under pressure. At the same time, the resumption of electrolytic aluminum production in Yunnan region promoted the growth of alumina demand beyond expectations. The above factors stimulate alumina prices to strengthen significantly, industry profits are expected to improve significantly. We continue to be optimistic about aluminum sheet investment opportunities and maintain an "outperform" rating for aluminum sheet.

Event: Rio Tinto declared force majeure factors on the shipment of Australian aluminum, and the disturbance event catalyzed the daily limit of alumina futures.

Rio Tinto has declared force majeure on third-party contracts for its alumina exports due to gas supply constraints at its alumina smelter in Queensland, Australia, according to Reuters. Since the Queensland gas pipeline accident in early March, the supply of natural gas to Rio Tinto's local facilities has been materially affected. Currently, gas pipeline operators expect the pipeline to return to normal in the second half of 2024. Until then, Rio Tinto's Yarwun and Queensland Alumina smelters will continue to operate at lower capacity. According to Rio Tinto announcement, as of 2023, its Alumina production capacity of Yarwun and Queensland Alumina projects in Australia is 3.25 million tons and 3.95 million tons, and the electrolytic aluminum production capacity of Bell Bay, Boyne Smelters and Tomago projects is 1.369 million tons. The corresponding export production capacity is about 4.55 million tons, accounting for about 3.2% of global production. According to Mysteel, the accident affected the production capacity of about 1.2 million tons/year, accounting for about 0.8% of global production. The supply disturbance promoted the alumina futures price to rise sharply, and on May 21, 2024, it once rose by the limit and reached a new high of 4158 yuan/ton since the listing.

Domestic bauxite supply tension continued, alumina production growth at a low level.

Due to environmental protection and safety monitoring factors, the production of bauxite in Henan and Shanxi regions is under significant pressure, resulting in the overall supply of bauxite in China. According to SMM, from January to April 2024, Shanxi and Henan respectively produced 461/1.46 million tons of bauxite, down 34.8%/35.4%, and domestic production of 17.83 million tons of bauxite, down 19.6%; Imports of bauxite reached 50.58 million tons, up 6.3% year-on-year; The total supply of bauxite was 68.41 million tons, down 1.9% year-on-year. According to ALD, at present, the resumption of domestic bauxite production in Jinyu is less than expected, and it is still unclear when to resume production. Therefore, the tight supply pattern of bauxite is expected to continue. Accordingly, according to SMM, from January to April 2024, domestic alumina production was 26.46 million tons, an increase of 3.1% year-on-year, and the output growth rate was significantly lower than 6.5% in the same period last year, which was relatively low.

Yunnan regional electrolytic aluminum production resumed earlier than expected, promoting alumina demand growth beyond expectations.

Yunnan Province added 800,000 kilowatts of electricity load for the first time for the electrolytic aluminum industry on March 16, 2024, and fully liberalized the electricity load on April 10. The resumption of production is about 3 months ahead of 2023, which is obviously earlier than expected. According to ALD, as of the end of April, Yunnan regional production capacity reached 700,000 tons, and the rest of the production capacity is expected to reach production in June. Affected by this, from January to April 2024, domestic electrolytic aluminum production reached 13.99 million tons, an increase of 5.4%. Accordingly, according to SMM, from January to April 2024, domestic alumina demand was 26.88 million tons, an increase of 5.3%, and there was a -109,000 tons supply and demand gap in April, supporting the rise in prices.

Alumina prices rose sharply, promoting a significant improvement in industry profits.

Affected by the above factors, so far in 2024 (as of May 20), according to Mysteel, the price of bauxite in Shanxi and Henan rose by 8.0% and 3.7% to 540 yuan/ton and 560 yuan/ton, the price of bauxite in Guinea rose by 3.6% to 72 US dollars/ton, and the price of alumina rose by 18.0% to 3,721 yuan/ton. Bauxite prices have risen less than alumina mainly because spot trading at the mine end is very limited, and the listing of alumina futures has brought a strong price discovery function. According to SMM estimates, since 2024 (as of May 20), the profit of alumina from domestic ore and imported ore as raw materials has risen from 285 yuan/ton and 231 yuan/ton respectively to 972 yuan/ton and 728 yuan/ton. The sharp rise in alumina industry profits is expected to bring significant profit thickening to enterprises with a high alumina self-sufficiency rate.

Risk factors:

Domestic electrolytic aluminum production progress exceeds expectations, overseas electrolytic aluminum production progress exceeds expectations, overseas electrolytic aluminum production capacity exceeds expectations, domestic or overseas electrolytic aluminum downstream demand growth is less than expected, the Federal Reserve rate cut is less than expected, and electrolytic aluminum import growth exceeds expectations.