Aluminum Market Turns Divergent, Lithium Still Has Upside Potential
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Aluminum Market Turns Divergent, Lithium Still Has Upside Potential
Morgan Stanley points out that aluminum shifts to a mixed view due to expectations of Middle East supply resumption, while lithium, supported by low inventory and strong demand, still has upside potential.
- Aluminum market consensus on bullishness is breaking as Middle East supply is expected to resume within 6 months
- Indonesia capacity ramp-up accelerates, with firms racing to capture high profit windows
- Lithium supply disruption risks rise, low inventory supports bullish view
- Guangzhou Futures Exchange lithium contract internationalization may enhance liquidity
- Scrap copper supply reduced due to invoice fraud crackdown, market liquidity declines
Report interpretation
Overview
This report summarizes key trends in the Greater China materials industry based on observations from the London Metal Exchange (LME) weekly meeting in Hong Kong. The core view is: the aluminum market is shifting from previous broad bullish consensus to more complex judgments, mainly because the market begins to expect Middle East supply recovery; while lithium remains bullish, benefiting from supply tightness, robust demand, and low inventory. Meanwhile, scrap copper supply is affected by regulatory crackdowns, reducing market liquidity, while black metal varieties such as iron ore and hot-rolled coil receive more attention.
Core views
Aluminum market sentiment has shifted significantly, no longer being a broadly accepted long-term bullish asset among the market. As investors begin to anticipate the end of Middle East geopolitical conflicts and the resumption of related metal supplies within the next six months, bullish sentiment for aluminum has cooled. Meanwhile, the pace of aluminum capacity expansion in Indonesia has accelerated, with multiple companies advancing production plans ahead of schedule to capture current high-profit windows—for example, Tsingshan Group announced the construction of an additional 8 million tonnes of capacity starting in 2026, and some new projects originally scheduled for Q3 have been brought forward to Q2. Additionally, aluminum wire exports continue to grow as they still enjoy VAT refund benefits, whereas 30% export tariffs on aluminum ingots and product tariffs make other export methods uneconomical. The outlook for the lithium industry remains optimistic. Despite short-term supply interruption risks, strong demand and low inventory levels support the bullish view. Specifically, restricted exports from Zimbabwe are expected to appear in import data starting May. If exports do not recover in May, production could be impacted between July and August; additional spodumene mines in Yichun, Jiangxi may also face production cuts between May and June. At the same time, Guangzhou Futures Exchange (GFEX) lithium contracts moving toward internationalization may bring higher liquidity and market attention. In raw material areas, scrap copper supply has been affected by recent special campaigns against invoice fraud, compounded by the continued effect of 'reverse invoicing' policies, compressing effective supply and reducing market liquidity. In addition, ferrous varieties such as iron ore and hot-rolled coils (HRC/Rebar) have received more capital attention, with long positions increasing significantly.
Analysis framework
This report adopts a typical industry meeting minutes analysis framework, integrating field research, feedback from market participants, and progress on macro events to extract key supply-demand change signals. Its core logic lies in identifying market sentiment turning points: when a previously highly consistent bullish sector (such as aluminum) starts to show divergence, it often indicates fundamental changes. Institutions construct dynamic judgments on sub-categories by tracking capacity release timing, policy impacts (such as invoice rectification), tariff structure changes, and inventory levels through multiple indicators. For lithium, the focus is on the dual support of 'supply disruption + low inventory', emphasizing the tight balance of fundamentals. This analysis method belongs to a typical 'Supply-Demand Framework' combined with 'Quantity-Price Decomposition' to judge the sustainability of price trends.
Methodology notes
Analyzing supply-side capacity release timing, policy restrictions, and demand-side order strength, inventory levels to judge commodity price trends.
This is the most basic and core methodology in commodity research. This report infers price movements by observing aluminum supply resumption expectations and Indonesia capacity acceleration, lithium supply disruptions and low inventory, embodying the basic logic that 'supply and demand determine prices'.
Decomposing price changes into changes in quantity and price dimensions to identify drivers.
The report mentions increased aluminum wire exports and suppressed aluminum ingot exports due to tariffs, essentially analyzing sales structure changes across different product forms, i.e., how the transfer of 'quantity' affects the overall trade pattern to explain price differences.
Assessing the impact of government regulatory policies on actual industrial chain operations.
The report points out that scrap copper supply is affected by invoice fraud crackdowns, directly illustrating how policies indirectly compress legal market effective supply by cracking down on violations, belonging to typical 'policy spillover effect' analysis.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Aluminum Corp. of China Ltd. (002541.SZ)As a domestic aluminum industry leader, it directly benefits from capacity expansion and policy support, but also faces supply pressure.
- Strengths
- Large state-owned enterprise background, strong cost control capabilities, complete industrial chain layout.
- Weaknesses
- Valuation under pressure under concerns of overcapacity, overseas business affected by trade policies.
- Comparison
- Larger scale compared to other aluminum enterprises, but growth momentum constrained by overall industry supply-demand changes.
- Risks
- If Middle East supply recovery is faster than expected, it will suppress aluminum price performance.
- Ganfeng Lithium Co. Ltd. (002738.SZ)A leading global lithium salt producer, benefiting from firm lithium prices and low inventory environment.
- Strengths
- Possesses high-quality lithium resources, advanced technology, perfect global layout.
- Weaknesses
- High capital expenditure, sensitive to lithium price fluctuations.
- Comparison
- Stronger cost advantage and risk resistance capability in the industry.
- Risks
- Downstream new energy vehicle demand falling below expectations may affect sales.
- Shenzhen Kedali Industry Co Ltd (002850.SZ)Specializing in high-performance metal materials, benefiting from high-end manufacturing and import substitution trends.
- Strengths
- High product value-added, concentrated customers, strong profitability.
- Weaknesses
- Downstream applications relatively concentrated, easily affected by prosperity of single industries.
- Comparison
- More technical barriers compared to traditional metal processing enterprises.
- Risks
- Raw material price volatility and international trade friction risks.
Key data
- Size of New Indonesian Aluminum Capacity800ktTsingshan Group announced construction will start in 2026, showing capacity expansion accelerating.
- Aluminum Wire Export AdvantageStill enjoys VAT refundsMore economical than the 30% export tariff on aluminum ingots.
- Zimbabwe Lithium Export Impact TimeVisible starting MayIf exports do not resume in May, production may be affected in July-August.
- Yichun Lithium Mine Production Cut TimeMay/JuneAdditional mining projects may face production cuts.
- GFEX Lithium Contract InternationalizationMay increase liquidityExpected to attract more international investor participation.
Impact & implications
For the aluminum industry, the shift in market consensus means previous valuation premiums may face correction, requiring vigilance for price downside risks brought by future supply recovery. For the lithium industry, the coexistence of low inventory and supply disruption provides solid support for price increases, especially enterprises with low-cost resources or integrated layouts possess stronger competitiveness. At the same time, tightening scrap copper supply will benefit compliant producers and may push up scrap copper recycling prices. In addition, rising concentration of long positions in iron ore and hot-rolled coils reflects a re-pricing of the industrial cycle, potentially indicating enhanced expectations for subsequent demand recovery.
Risks
- Middle East geopolitical situation eases faster than expected, causing aluminum supply to recover rapidly
- Lithium downstream demand growth slows, inventory pressure rises
- Scrap copper supply cleanup causes market liquidity to shrink further, triggering sharp short-term price volatility
- RMB exchange rate fluctuations affect cross-border trade profits
What to watch
- Whether Zimbabwe lithium exports resume in May
- Actual production situation of lithium mines in Yichun area
- Construction progress and commissioning time of new Indonesian capacity
- Internationalization progress and trading activity of Guangzhou Futures Exchange lithium contracts
- Trend of long position changes in iron ore and hot-rolled coils