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Investing.com -- UBS has trimmed its alumina price forecast for 2025, a move that comes following a rapid correction in prices due to a supply increase.
After peaking at over $800 per ton in December 2024, the spot price for alumina has fallen to below $400 per ton. This sharp decline has occurred faster than UBS forecasted, with the market shifting from a state of deficit in 2024 to an expected surplus in 2025.
“Alumina is a historically volatile commodity, and although we did not believe prices seen in 4Q24 were sustainable… the unwind has been faster than we had expected,” analysts led by Daniel Major said.
The boost in supply is attributed to several factors, including the ramping up of production in China, where alumina run rates reached record highs in February and output has grown 9% year-to-date.
Also, imports of bauxite from Guinea have rebounded significantly, rising 25% year-to-date with a 30% increase from Guinea alone. This follows a temporary decline in exports during the fourth quarter of 2024, caused by a ban on exports from Emirates Global Aluminium’s Guinea Alumina (OTC:AWCMY) Corporation (GAC) mine.
Looking ahead, China is expected to add more than 7 million tons of new alumina capacity in 2025, and the potential restart of the GAC mine could further increase bauxite availability.
Moreover, project ramp-ups in Indonesia and India are set to add capacity in 2025 and 2026. However, global aluminum output, which drives alumina demand, is projected to see limited growth.
While large alumina surpluses are unlikely to materialize due to production curtailments and moderated Chinese exports, UBS cautions that the introduction of new supply from China, fed by lower-cost seaborne bauxite, could deflate the cost curve. Spot Guinea bauxite prices have already decreased from $120 per ton to approximately $95 per ton.
In light of these factors, UBS has cut its alumina price forecasts for the second to fourth quarters of 2025 to below $400 per ton, resulting in an approximate 20% reduction to an average of $440 per ton.
But despite the forecast cut, the bank remains positive about the fundamental outlook for aluminum.
The firm forecasts modest market deficits due to limited smelter production growth and resilient demand, supporting a healthy London Metal Exchange (LME) aluminum price forecast of around $2,700 per ton.
In the equities space, UBS maintains a bullish stance on companies like Norsk Hydro (OL:NHY), Alcoa Corp (NYSE:AA), China Hongqiao Group (HK:1378), and Companhia Brasileira de Aluminio (BVMF:CBAV3) (CBA).
“Lower alumina prices & weak downstream demand have been a headwinds for Al equities; but the aluminum price remains the key driver and we see attractive valuations/cash flows in 2025/26 and remain buyers of NHY, AA, Honqiao & CBA,” analysts said.