Macquarie-Asia Essentials-20250206

Upstream alumina to see margin squeeze. We see pressure on integratedaluminium companies (e.g., Chalco) profits in 2025E, given lower aluminaprices that could hurt Chalco's alumina segment profit. Alumina supplyresponse to high prices is less constrained, compared to aluminium, dueto no policy cap on alumina (vs. cap on aluminium). We estimate 11mtpaof additional alumina capacity to be added in 2025E. In near term, secondphase of Chalco Huasheng (2mtpa) would likely commence in 1H25. As aresult, we expect alumina refineries margin to fall from peak levels in 4Q25.

Downstream aluminium margin to recover. We expect the aluminiumsmelting margin to recover from break even levels in Jan 2025, as supplyresponse is nearly impossible in China, since China government has cappedcapacity additions due to high power intensity. Lower input costs (alumina)should therefore support margins. On the demand side, we expect a ~2%demand CAGR over 2024E-2028E, with support from drivers including EVand power grid (ultra-high voltage network, or UHV). Aluminium smelters'high utilisation at 88% also should support margin recovery.