The aluminum industry is hit by a supply shock, highlighting the scarcity of China Hongqiao

The global market is repricing aluminum.

In the past, aluminum was more often traded as a cyclical commodity: when demand was strong, prices rose; when inventory was high, prices fell. However, the change this year is that aluminum is being reconsidered as a supply security asset. Middle Eastern conflicts have driven up energy and shipping risks, with disruptions in the Strait of Hormuz affecting raw material inputs and product outputs for overseas aluminum plants. Meanwhile, policy changes regarding bauxite in Guinea have prompted the market to reassess the scarcity of ore resources.

This means one thing for China Hongqiao $CHINAHONGQIAO (01378.HK)$ As long as the aluminum market remains intact, its stock price will hardly see significant declines.

The macro logic isn't complicated. Domestic electrolytic aluminum production capacity in China is nearing the ceiling of 45 million tons, with limited new supply additions. Overseas capacity, on the other hand, is constrained by electricity, natural gas, logistics, and geopolitical factors. Although there are cyclical fluctuations in demand, sectors such as new energy vehicles, photovoltaics, energy storage, power grid investments, lightweight materials, and AI computing infrastructure continue to steadily increase aluminum consumption over the medium to long term.

Guotai Haitong's research report noted that the aluminum market supply would remain tight until 2026, raising China Hongqiao’s target price to HKD 43.2. The rationale includes domestic operating capacity nearing its cap, along with high copper-to-aluminum ratios driving demand for aluminum as a substitute for copper. Views from CICC, reposted by Futu News, also mentioned that after force majeure events at Qatar Aluminium and Bahrain Aluminium, LME aluminum prices briefly surged to USD 3,418 per ton. They believe rising aluminum prices and expanding per-ton aluminum profits present revaluation opportunities.

What sets Hongqiao apart is that it isn't merely a smelting company that follows aluminum price fluctuations. It owns an integrated supply chain, including upstream mining, alumina, electrolytic aluminum, and processing operations.

A Huayuan Securities report dated April 25 highlighted that China Hongqiao has a total of 21 million tons of alumina production capacity domestically and internationally by 2025, 6.46 million tons of compliant electrolytic aluminum capacity, and 970,000 tons of aluminum processing capacity. The report also mentioned that as part of the SMB Winning Consortium, Hongqiao has secured bauxite supplies from Guinea. By 2025, Winning Consortium's Boke bauxite exports are projected to exceed 70 million wet metric tons, while Welly International expects shipments to surpass 90 million tons by 2026. The company’s theoretical self-sufficiency rate for alumina production capacity reaches 171%.

These figures are crucial. When aluminum prices rise, the market focuses on profit elasticity. When supply chains tighten, the market looks at resource certainty. Hongqiao excels in both aspects.

Guinea is at the core of this logic. A previous report by Minmetals Futures showed that in the first ten months leading up to 2025, China imported a cumulative 171.4 million tons of bauxite, marking a 30.11% year-on-year increase. Imports from Guinea reached 127.43 million tons, surging by 38.37%. Guinea is no longer just a marginal supplement but rather a key variable in ensuring raw material security for China’s aluminum industry chain. For ordinary aluminum companies, this poses a risk. For Hongqiao, which has long-term access to mines and a robust logistics system, this represents a moat.

Huachuang Securities provided another perspective in their April 3 research note. In 2025, China Hongqiao achieved revenue of RMB 162.354 billion, representing a 4.0% year-on-year increase, and net profit attributable to shareholders of RMB 22.636 billion, up 1.2% year-on-year—a record high. Sales volume in the aluminum alloy business reached 5.824 million tons, with gross margins improving to 28.5%. The debt-to-asset ratio decreased from 48.24% to 42.25%. Huachuang Securities set a target price of HKD 44, maintaining a 'Recommend' rating, and raised their forecasts for net profit attributable to shareholders for 2026–2028 to RMB 32.15 billion, RMB 34.97 billion, and RMB 38.29 billion, respectively.

Shareholder returns are also underpinning valuations. According to a research report by Shenwan Hongyuan on April 2, China Hongqiao plans to distribute a final dividend of 165 Hong Kong cents per share for the fiscal year ending 2025, with a payout ratio of approximately 65.4%. During the year, the company spent HKD 5.58 billion to repurchase 306 million shares, all of which were canceled. The institution maintained its 'Buy' rating and projected net profits attributable to shareholders of RMB 32.2 billion, RMB 34.4 billion, and RMB 37.8 billion for 2026, 2027, and 2028 respectively.

Foreign capital sentiment remains strong. AASTOCKS cited the public summary of a HSBC research report stating that Hongqiao's FY2025 results were solid but slightly below expectations. HSBC maintained a 'Buy' rating and a target price of HKD 41. The bank believes that in the face of macro uncertainties, aluminum is more resilient than copper and gold within its coverage. Hongqiao is trading at an estimated P/E ratio of 7.7 times for FY2026, with a dividend yield of about 9%, making its valuation attractive.

This is the underlying reason why Hongqiao's stock price has been resistant to declines. In the short term, it may be influenced by sentiment in the Hong Kong stock market, capital flows, and commodity price fluctuations. However, as long as the central level of aluminum prices does not collapse and disruptions from Guinea ore and overseas aluminum plants persist, the market will find it hard to overlook Hongqiao's profit elasticity, resource advantages, and cash returns.

More directly, aluminum prices provide earnings elasticity for Hongqiao, ore sources offer a valuation premium, while dividends and buybacks act as a buffer for the stock price.

As long as the upward price logic continues, now is the right time to focus on cyclical stocks. However, Hongqiao’s current support comes not only from aluminum prices but also from ore, self-sufficiency in alumina, cost curves, and shareholder returns. The aluminum market remains intact, and as long as the global supply chain continues to pay a premium for energy, shipping, and resource policies, every dip caused by market sentiment in Hongqiao looks more like a buying opportunity rather than the start of a trend reversal.

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