UBS Aluminium: Improving Fundamentals to Support Higher Prices
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UBS maintains a structurally bullish outlook on aluminium, noting that LME prices above $3,000 per tonne reflect supply disruptions, CBAM-related tariffs, elevated copper prices (a ratio exceeding 4x), and speculative positioning in hard assets. While short-term consolidation is possible, limited supply growth underpins the positive trajectory. UBS projects primary aluminium demand growth of 2.5% to 3.0% in 2026, accelerating to approximately 3.5% in 2027. Supply remains constrained as Chinese production nears its 45-million-tonne capacity ceiling, while annual Indonesian additions of roughly 1 million tonnes are insufficient to create a structural surplus. Consequently, the global aluminium market is expected to remain broadly balanced in 2026, with mid-cycle price risk skewed to the upside. Conversely, alumina fundamentals remain cautious. Driven by significant new capacity additions in China, Indonesia, and India, alumina prices are deeply embedded within the cost curve at around $300 per tonne. Although downside appears limited due to a relatively flat cost curve and Chinese swing capacity, sustainable upside is capped by incoming supply. Regarding equities, UBS favors Norsk Hydro (NHY, Buy) for its attractive valuation, China Hongqiao (Buy), and Press Metal (Buy), while adopting a cautious stance on Alcoa (AA, Neutral) due to its relatively elevated valuation despite benefiting from tariff exemptions and debt reduction.