[Into the Stocks] Aluminum Supercycle Starts... Exciting 'Joil·Sama Aluminum'

International Aluminum Price Surpasses $2700
Highest in 10 Years
Supply-Demand Imbalance Continues
Electric Vehicle and Renewable Energy Demand Explodes
Chinese Government Supply Restriction Policy

[Asia Economy Reporter Park Ji-hwan] As aluminum prices in the international raw materials market have risen to a 10-year high, the stock prices of major domestic aluminum companies are soaring. With the increase in eco-friendly demand such as electric vehicles and renewable energy, and China, a major producer, announcing a reduction in aluminum production as part of its carbon reduction policy, there is a diagnosis that the supply-demand mismatch could worsen further. At least until next year, the aluminum supercycle (a long-term price uptrend) is expected to continue due to supply-demand imbalance, and the earnings outlook for related companies is brighter than ever.

Why Are Aluminum Company Stocks Rising?

Recently, aluminum-related stocks in the domestic stock market have been literally "soaring." According to the Korea Exchange on the 9th, major aluminum companies Joil Aluminum and Sama Aluminum have risen 85.4% and 69.2%, respectively, so far this month until the previous day. These are the 1st and 3rd highest increases in the KOSPI.

Above all, the strong performance of aluminum prices in the international raw materials market has had a significant impact. On the 6th (local time) at the London Metal Exchange (LME), the 3-month aluminum futures price once rose 2% intraday to $2,782 per ton compared to the previous day. This is the highest level in about 10 years since May 2011.

Aluminum demand continues to increase, but supply cannot keep up, resulting in a worsening supply-demand imbalance. A significant portion of aluminum demand comes from the electric vehicle industry. Electric vehicles contain an average of 250 kg of aluminum, which is more than 70 kg heavier than conventional internal combustion engine vehicles. Aluminum demand is expanding as an alloy replacing steel to reduce the weight of electric vehicle batteries and improve fuel efficiency. According to market research firm SNE Research, the electric vehicle market is expected to grow at an average annual rate of 19% until 2030. Additionally, aluminum is widely used in renewable energy industries such as wind turbine towers and solar panels. Since the electric vehicle and renewable energy industries are considered the most promising growth sectors, aluminum demand is structurally bound to continue increasing.

On the other hand, production is difficult to increase easily. Aluminum production involves refining bauxite into alumina and then electrolyzing it, a process that emits a large amount of carbon. This is why China, the largest producer, has tightened regulations on aluminum production companies. Furthermore, a coup in Guinea, which supplies bauxite, has intensified supply instability. Guinea accounts for about 55% of China's bauxite supply. Choi Jae-ho, a researcher at Hana Financial Investment, said, "China, which accounts for more than 60% of global aluminum production, announced policies to halt or adjust the operating rates of aluminum plants to reduce carbon emissions, so the supply-demand mismatch is expected to continue and drive aluminum price increases."

Strengths by Company...

Recently, domestic companies related to aluminum foil, an essential material for secondary batteries, have been attracting attention. For charging and discharging in secondary batteries, current must be transmitted, and aluminum foil plays a role in allowing current to move freely in the cathode active material. Currently, there are only six companies worldwide capable of manufacturing aluminum foil applicable to electric vehicles, half of which are domestic companies. The aluminum foil supply chain involves processing companies such as Novelis and Joil Aluminum, which process aluminum ingots into thin strips of foil or plates about 3 mm thick, and companies like DI Dongil and Sama Aluminum, which further process and sell to battery and food companies.

Choi Bo-young, a researcher at Kyobo Securities, emphasized, "The aluminum foil industry is a business structure that inevitably accompanies the market growth of electric vehicles as it is an essential cathode foil material for secondary batteries. The average selling price (ASP) of EV aluminum foil is expected to increase, and its importance within secondary batteries will be strengthened."

Sama Aluminum is expected to inevitably expand its business as requests for overseas expansion and capacity increases from customers continue, based on its top domestic aluminum foil product competitiveness. Joil Aluminum, one of the top three domestic aluminum rolling specialists, stands out for its undervalued stock price compared to downstream companies such as Sama Aluminum, DI Dongil, and Dongwon Systems. Considering that the expected price-earnings ratio (PER) for this year is 24 times as of early this month, Joil Aluminum's 13 times PER is analyzed as an absolute undervaluation zone. Its earnings improvement trend is already clear. After five consecutive years of operating losses, it succeeded in turning a profit this year, expected to be the first year of turnaround. Choi Jae-ho of Hana Financial Investment said, "Aluminum is at the starting point of a supercycle. Due to the global supply-demand mismatch, the cycle is unlikely to end in the short term."

Recent Sharp Stock Price Rise Is a Burden

However, the recent sharp rise in aluminum companies' stock prices is a burden. Considering the significant expansion of aluminum demand due to the electric vehicle market growth, it could be a good long-term choice, but since stock prices have risen sharply in a short period, a price correction is a concern. In fact, on this day, Joil Aluminum and Sama Aluminum fell about 4% and 13%, respectively, due to profit-taking after the recent surge.

Lee Jin-woo, head of the investment strategy team at Meritz Securities, said, "The recent rise in the aluminum sector seems to be influenced by a shortage despite high demand. If individual companies deliver good earnings results, the sharply rising stock prices in the short term can be justified, so we need to watch the process where the reason for the stock price increase is proven by earnings."