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NON-FERROUS METALS:US SANCTIONS ON RUSAL DRIVES UP ALUMINUM OXIDE PRICE
Published:2018-04-23 09:44:51    Text Size:【BIG】【MEDIUM】【SMALL
Summary:NON-FERROUS METALS:US SANCTIONS ON RUSAL DRIVES UP ALUMINUM OXIDE PRICE
US sanctions on Rusal would push up price of aluminum oxide. First, Rusal mainly producesaluminum oxide in non-CIS countries, which are greatly affected by US sanctions. In 2016, Rusalproduced 10.63 million metric tons of aluminum oxide in 2016. Without considering 3.86 millionmetric tons output from QAL alumina refinery, Rusal’s total output amounted to 6.77 million metrictons, with only 2.68 million metric tons of aluminum oxide produced in Russia. In other words, Rusalproduced over 4 million metric tons of aluminum oxide overseas. We believe US sanction may causeparalysis of Rusal’s aluminum production and sales, thus pushing up the price of the material.
  Second, most of Rusal’s aluminum bauxites are located overseas, so production of aluminum oxidewill be affected. In 2016, Rusal’s aluminum bauxites utilized 15.3 million metric tons of productioncapacity, of which only 6.2 million metric tons are located in Russia.We believe the 9.1 million metrictons of production capacity located outside Russia will very likely be affected by the sanctions, thusaffecting the production of aluminum oxide. Rusal produced almost all electrolytic aluminum withinits own boundary, which are almost immune to US sanctions. In conclusion, we believe thealuminum oxide price enjoys stronger upside potential.
  US sanctions on Rusal will drive up aluminum price as well as aluminum oxide price. We believesanctions imposed by US and Europe will increase the instability of global electrolytic aluminumsupply, thus lifting overseas aluminum price. Domestic aluminum price will also enjoy a boost. Aselectrolytic aluminum price rises and profitability increases, aluminum oxide price will also trend up.
  Price rise of electrolytic aluminum may to some extent affect the profit margin of aluminum price.
  Overall, increase in aluminum price will drive up aluminum oxide price.
  Alunorte, the world’s largest aluminum oxide refinery under Hydro, cut production, intensifyingsupply-demand imbalance. Alunorte, the world’s largest aluminum oxide refinery, produced 6.4million metric tons of aluminum refinery in 2017. This February, due to environmental issues,Alunorte was sanctioned to cut aluminum oxide production by half. Overseas aluminum productionwas only 50 million metric tons. The aluminum oxide production reduced accounted for 5% of totaloverseas production.
  Reiterate overweight for the aluminum industry. US sanctions on Rusal continue, which will greatlyreduce global aluminum oxide production. Rusal will face 4 million metric tons of aluminum oxideproduction reduction, and aluminum oxide production at Alunorte will be cut by 3 million metrictons. Global aluminum oxide supply may face shortage. Enforcement of sanctions towards Rusalmay further stimulate aluminum price rise. And the price of aluminum oxide is expected to increasedramatically. Global demand for China’s domestic aluminum will increase, intensifyingsupply-demand imbalance. As a result, the domestic aluminum oxide price will be raised. Werecommend investment in Aluminum Corp of China (601600), Yunnan Aluminium (000807), HenanShenhuo Coal & Power (000933),  Shandong Nanshan Aluminium (600219),  and Henan ZhongfuIndustry (600595).
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