UBS-China Basic Materials Lifting aluminium earnings and PT-20250711

Should we look through a potential 'soft patch' in metals demand?

Industrial metals have largely recovered losses post 'Liberation Day' with trade war de-escalation reducing the risk of a recessionary demand scenario (Miners' Price Review:Soft Patch Ahead). The period of extreme macro uncertainty may have subsided but UBSglobal team believes the impact of the Trade War is unlikely to be over and we arecautious on the near-term outlook: (1) uncertainty will likely result in some softening inend demand despite generally resilient demand from secular drivers and support frommoderate China stimulus (grid/appliances). (2) Reversal of pre-tariff buying.

Lift 2025 China aluminium price by 3%; still see upside medium term

Like other industrial commodities, aluminium has been exposed to a slowdown in globaleconomic growth in 2023/24 and headwinds from China's property/construction.However, the structural drivers are: (1) vehicle light-weighting (inc EVs); (2) structuralgrowth in renewables capacity (solar); (3) growth in electrical transmission (supported bysome copper substitution); and (4) substitution away from plastics in packaging. In ourview, this will drive decent demand growth medium-term, albeit growth is expected tomoderate vs the ~5% CAGR over the past 15 years. Near term we expect seculardemand drivers to be outweighed by (1) trade war uncertainty impacting end demand;(2) moderation/reversal of pre-tariff buying; and (3) slowing China solar (higherexposure vs copper) given the rush installation before changes in renewable tariffs; weexpect this to result in below trend growth in global aluminium demand in 2025 but inour view trade war de-escelation and resilient demand YTD points to lacklustre ratherthan a recessionary demand environment. Given these factors we recently slightly lifted2025 China/global aluminium price forecast by 3%/1% to Rmb20,300/t / US$1.11/lb,reversing a more a cautious demand outlook as maximum tariff uncertainty hassubsided.