1 August 2017
Metals & Mining
Aluminum
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Metals & MiningIndustry Update
Asia
China
Industry
Aluminum
Date
1 August 2017
Deutsche Bank
Markets Research
China aluminium industry update
Xinfa completed capacity shutdown of 530ktpa earlier this week
Aluminium names performed quiet strong yesterday, thanks to the news of Xinfa
Group completing the cuts of 530ktpa smelting capacity earlier this week and
government's comment against Chalco's Shanxi Huarun project, showing people
that government is indeed taking it seriously. According to Asian Metal, a group
of industry experts had paid a visit to its smelting plants and conrmed that Xinfa
had successfully completed the closure of 426 potlines with 530kt capacity.
Chalco needs to complete some formalities for its Shanxi Huarun project
MoEP commented on July 30 that Chalco Huarun’s project was approved by
Shanxi NDRC ahead of the conrmation of its capacity swap plan. According
to company management, the project's quota is from Liaoning Fushun plants
and Guangxi. They have the State Council's approval already but just need to
complete the required formalities. Meanwhile, MoEP's comment on Chalco and
other recent capacity closures indicate that government is indeed serious about
supply side reform, and both SOE and private companies are required to strictly
follow the policies.
Remain constructive on aluminium industry and Chalco
Aluminum inventory in China local warehouses increased 2% WoW last week to
almost 1.3mt, partially due to sluggish construction demand during abnormal hot
season. We believe recent capacity shut down from Xinfa, Weiqiao, Easthope and
Jiarun to lower industry output and expect inventory to be lower in upcoming
months, not to mention we have environmental shut down starting from middle
November this year. With gradual executions happening, we remain positive
on Chinese government’s strong determination on supply side reform, and
potentially an environmental shutdown during heating season, as well as our
constructive view on Chalco. We use 1.8x 2017E P/B – a premium over Chalco's
long-term historical average after factoring in improving ROE trajectory – as our
12-month target forward P/B multiple. Risks for the aluminium sector and price
relate to Chinese policy and execution.
Sharon Ding
Research Analyst
+852-2203-5716
James Kan
Research Analyst
+852-2203 6146
Top picks
Chalco (2600.HK),HKD4.90Buy
Source: Deutsche Bank
Companies featured
Chalco (2600.HK),HKD4.90Buy
2016A2017E2018E
P/E (x)86.726.919.2
EV/EBITDA (x)9.09.07.7
Price/book (x)1.11.61.4
Source: Deutsche Bank
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