汇丰银行-全球-金属与采矿业-铝：行业表现-2019.4.8-42页.pdf

Disclosures&Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix,and with the Disclaimer,which forms part of it.Issuer of report:HSBC Securities and Capital Markets(India)Private Limited View HSBC Global Research at:https:/ We expect aluminium prices to stage a modest recovery in the near term while alumina prices may stay subdued as such relative positioning within the value chain is likely to be a key differentiator for companies with exposure Rio Tintos aluminium business is better positioned than South32s within our LSE coverage;we prefer Hindalco among Indian producers and like Hongqiao and Chalco in China More constructive on aluminium vs bauxite and alumina:We forecast aluminium to outperform in the near-(+11%in 2019)and medium-term(+25%by 2023)supported by a recovery in demand in China,as the impact of stimulus measures filters through the economy.We expect the alumina market to return to a modest surplus in 2019,as Alunorte restarts,which should see prices trend towards cost support levels(USD350/t).For bauxite,we believe the tight market will likely ease as growth in supply from Guinea offsets environment and safety driven mine closures in China.Relative positioning is key to performance:Companies with greater aluminium exposure are likely to benefit from these price dynamics.Companies with integrated value chains and access to cheap power will be best placed to benefit,in our view.LSE exposure:Rio Tinto should benefit from having more defensive conversion margins and greater access to cheap hydro power.South32,however,is differentiated by its long alumina position(3.5mt)and hence may see margin pressure under our base case.Indian exposure:We prefer Hindalco due to its low-cost integrated Indian operations and relatively low-risk contribution from its wholly-owned downstream subsidiary,Novelis.Vedantas aluminium business is relatively high cost and hence highly geared to the aluminium price.NALCO also has relatively high operational leverage but is differentiated by its long alumina position.Chinese exposure:We see value in both Chalco and China Hongqiao.Both companies have integrated production and earnings are highly sensitive to aluminium prices.8 April 2019 Kirtan Mehta*,CFA Analyst,Metals&Mining HSBC Securities and Capital Markets(India)Private Limited kirtanmehtahsbc.co.in+91 80 4555 2752 Derryn Maade*Analyst,Metals&Mining HSBC Securities(South Africa)(Pty)Ltd +27 11 676 4519 Jeff Yuan*Head of HK/China Metals&Mining Equity Research The Hongkong and Shanghai Banking Corporation Limited .hk+852 3941 7010 Rajesh Lachhani*Analyst,Metals&Mining,Materials HSBC Securities and Capital Markets(India)Private Limited rajeshvlachhanihsbc.co.in+91 22 6164 0687 Fawzi Hanano*Metals&Mining Strategist and Marketing Analyst HSBC Bank plc +44 20 3359 6052 Anshul Gadia*,CFA Analyst,Metals&Mining HSBC Securities and Capital Markets(India)Private Limited anshulgadiahsbc.co.in+91 80 4555 2754 *Employed by a non-US affiliate of HSBC Securities(USA)Inc,and is not registered/qualified pursuant to FINRA regulations Commodities Unearthed Equities Metals&Mining Global Equities exposed to the aluminium value chain Company Ticker Currency Share price*Target price Rating Upside/downside Market cap(USDbn)EV(USDbn)3m ADTV(USDm)Al chain*cont.to EBITDA Valuation chg to+10%chg in price of EV/EBITDA 2019e Aluminium Alumina Chalco 2600.HK HKD 3.41 4.30 Buy 26.1%9.1 21.2 9 100%50%25%9.4 China Hongqiao 1378.HK HKD 6.28 8.50 Buy 35.4%6.9 12.4 10 100%40%10%3.4 Hindalco HALC.BO INR 210.45 320.00 Buy 52.1%6.8 11.3 24 31%11%0%4.5 NALCO NALU.NS INR 55.45 72.00 Buy 29.8%1.5 1.2 11 100%17%17%4.1 Rio Tinto RIO.L GBp 4,589 4,675 Hold 1.9%102.2 108.1 420 12%5%2%6.0 South 32 S32.L GBp 209 230 Buy 10.0%13.8 10.4 6 37%13%10%5.0 Vedanta VDAN.NS INR 187.20 200.00 Hold 6.8%10.0 15.4 33 10%20%-5%3.9 Total 150.5 180.1 5.9 Source:Refinitiv Datastream,HSBC estimates.*Priced as on close on 4 April 2019,*Al chain refers to the aluminium business Aluminium:Positioning for performance Equities Metals&Mining 8 April 2019 2 Relative positioning becomes increasingly important HSBC price forecasts for aluminium chain(indexed to current prices:aluminium USD1895/t,alumina:USD400/t,bauxite:USD53.5/t)Source:China Administration of Customs,Refinitiv Datastream,Wood Mackenzie,HSBC estimates We expect aluminium prices to outperform alumina and bauxite in the near-and medium-term(see chart above).As such,companies with greater relative aluminium exposure are likely to benefit from these price dynamics.Should this play out,then the aluminium industrys attractiveness should improve,as conversion margins remain well supported.This could lead to more intense competition,despite relatively high hurdle rates for new entrants.Companies with integrated value chains(see chart below)and access to cheap power will be best placed to benefit,in our view.8090100110120130140Q1-17Q2-17Q3-17Q4-17Q1-18Q2-18Q3-18Q4-18Q1-19Q2-19Q3-19Q4-19Q1-20Q2-20Q3-20Q4-20Q1-21Q2-21Q3-21Q4-21Q1-22Q2-22Q3-22Q4-22Q1-23Q2-23Q3-23Q4-23AluminiumAluminaBauxiteMedium-term:aluminium:+25%,alumina:-5%,bauxite:+5%2019:aluminium:+11%,alumina:-13%,bauxite:-2%Who is best positioned across the value chain?We expect aluminium prices to stage a modest recovery in the near term while alumina prices may stay subdued as such relative positioning within the value chain is a likely to be a key differentiator for companies with exposure Rio Tintos aluminium business is better positioned than South32s within our LSE coverage;we prefer Hindalco amongst Indian producers and like Hongqiao and Chalco in China 3 Equities Metals&Mining 8 April 2019 EBITDA mix from aluminium chain(USDbn)Source:Company data,HSBC estimates.*Primary aluminium business for Hindalco and NALCO includes attached downstream business in India*Downstream business for Hindalco includes their Novelis operations,and downstream business for Hydro includes their Metal Markets,Rolled Products and Extruded Solutions businesses,+companies not under HSBC coverage Our price forecasts may of course not pan out exactly as envisaged in the price chart above,so we have included two risk scenarios in the short term where the aluminium price rises faster than expected and where the alumina price stays stronger than expected for longer.LSE exposure:We note that within our LSE aluminium exposure,Rio Tinto is relatively advantaged under our base case scenario with more defensive conversion margins(see Primary aluminium EBITDA margin chart below)and greater access to cheaper hydro power.South32 is however differentiated by its long alumina position(3.5mt)and will stand to benefit should alumina prices stay stronger for longer but will see margin compression if our base case plays out.Indian exposure:We prefer Hindalco due to its low-cost integrated Indian operations and relatively low-risk contribution from its wholly owned downstream subsidiary,Novelis.In the longer-term,its primary aluminium division is relatively advantaged owing to its more defensive conversion margins with backward integration into bauxite and alumina.Furthermore,-0.50.00.51.01.52.02.53.03.54.02018201920182019FY19FY20FY19FY20FY19FY2020182019201820192018201920182019RioTintoSouth32HNDL Nalco VED Chalco Hongqiao Alcoa+Hydro+BauxiteAluminaPrimary aluminium*Downstream*Others Equities exposed to aluminium Company Ticker Currency Current price Target Price Rating Upside/downside Market cap(USDbn)EV(USDbn)3m ADTV(USDm)Aluminium chain contribution to EBITDA Valuation change to+10%aluminium price Valuation change to+10%alumina price EV/EBITDA 2019e EEMEA Rio Tinto RIO.L GBp 4,589 4,675 Hold 1.9%102.2 108.1 420 12%5%2%6.0 South 32 S32.L GBp 209 230 Buy 10.0%13.8 10.4 6 37%13%10%5.0 India Hindalco HALC.BO INR 210.45 320.00 Buy 52.1%6.8 11.3 24 31%11%0%4.5 NALCO NALU.NS INR 55.45 72.00 Buy 29.8%1.5 1.2 11 100%17%17%4.1 Vedanta VDAN.NS INR 187.20 200.00 Hold 6.8%10.0 15.4 33 10%20%-5%3.9 China Chalco 2600.HK HKD 3.41 4.30 Buy 26.1%9.1 21.2 9 100%50%25%9.4 China Hongqiao 1378.HK HKD 6.28 8.50 Buy 35.4%6.9 12.4 10 100%40%10%3.4 Total 152.3 182.1 5.9 Source:Refinitiv Datastream,HSBC estimates,priced as on close of 4 April 2019 Equities Metals&Mining 8 April 2019 4 Hindalcos margins will see lower volatility in the long-term with material exposure to downstream aluminium(at c60%of EBITDA)through its stake in Novelis.This downstream exposure is set to increase after the acquisition of the Aleris acquisition,which represents upside potential to our base case as it is not currently accounted for.Vedantas aluminium business is relatively high cost and hence displays the highest gearing to the aluminium price.As such the business benefits from rising aluminium and falling alumina prices from its Indian operations.However,this is not sufficient to offset concerns we have over its zinc business(declining prices)and issues regarding capital allocation.For further details please see India Non-Ferrous:Losing ground,29 Mar 2019.NALCO also has relatively high operational leverage but is differentiated by its long alumina position.The company is positioned to benefit from the+25%rise in aluminium price we forecast over the medium-term.NALCOs long alumina position(1.3mt),is likely to underperform in our base case scenario as we see alumina prices retracing but could benefit should these prices stay stronger for longer.Chinese exposure:We see value within our Chinese exposure,and have Buy ratings on both aluminium pure-plays,Chalco and China Hongqiao.Both companies earnings are highly sensitive to changes in aluminium prices.Our sensitivity analysis shows that with a RMB1000/t increase in the domestic aluminium price above our 2019e price of RMB14,500/t,2019e earnings could increase by 122%for Chalco and by 58%for China Hongqiao.Chalco and China Hongqiao will benefit from a recovery in aluminium prices.In the long-term,China Hongqiao has more defensive conversion margins with:1)its relatively new and energy efficient smelters,2)access to bauxite from Guinea,and 3)lower energy costs due to a higher level of self-sufficiency in power.How to play the price scenarios Price forecasts(relative to spot)LSE equities Indian equities Chinese equities Base Case Short-term(till year-end)Aluminium+11%,Alumina-12.5%Rio Tintos EBITDA from its aluminium division will see a lower decline than that of South 32 due to the absence of S32s net long position in alumina Vedantas aluminium division to benefit the most due to its higher sensitivity to aluminium price.China Hongqiao will benefit more as the company has less long exposure in alumina than Chalco Medium-term(till 2023)Aluminium:+25%,alumina:-5%Rising aluminium prices move the needle more for South32 than Rio Tinto as its aluminium business unit represents a greater share of total company EBITDA Vedantas aluminium division to benefit the most due to its higher sensitivity to aluminium price.NALCO set to benefit from higher sensitivity to aluminium and growth in alumina production,which offsets weaker prices Chalco to benefit from higher sensitivity to aluminium price,particularly due to its higher operational and financial leverage.Chalco to also benefit from planned volume growth.Long-term(2019e real terms)Aluminium:USD2,200/t,alumina:USD350/t,bauxite:USD52.5/t Rio Tinto has a competitive advantage due to its integration across the value chain and access to cheaper hydroelectricity.South32 is fully integrated,but lacks access to cheaper power,with the added risk of power contracts in South Africa due for renegotiation before 2020.Hindalco will benefit due to its competitive and integrated aluminium division.Longer-term,material downstream exposure through Novelis and Aleris(after acquisition)will see volume growth and reduction in volatility of earnings.China Hongqiao has an advantage with integrated operations,higher self-sufficiency in power with competitive power costs Short-term scenarios 1)Upside risk of faster rebound in aluminium price,alumina as per base case South32 has higher sensitivity to changes in the aluminium price,as aluminium represents a relatively large proportion of total company profits and due to the inherent operating leverage in this business unit.Vedanta is advantaged due to its higher sensitivity to the aluminium price and negative sensitivity due to short position in alumina.Higher sensitivity is the result of higher operating(high cost of aluminium production)and financial leverage.Chalco at an advantage due to higher sensitivity to aluminium price.2)Upside risk of alumina price staying at USD400-420 for longer,aluminium as per base case South 32 has an advantage due to its net long position in alumina and competitive alumina profitability NALCO is set to benefit due to its net long position in alumina and competitive alumina profitability Chalco at a marginal advantage as its cost of alumina production is lower than China Hongqiao and could leverage export opportunity.Source:HSBC scenario analysis.5 Equities Metals&Mining 8 April 2019 EBITDA margins across the value chain We highlight the relative difference between EBITDA margins in the front-end of the value chain,which is bauxite mining and alumina production,and the back-end,which is conversion to aluminium in the charts below.Margins in the front-end tend to be higher than those for aluminium production,as this is merely a conversion business.However,the relative price performance of bauxite and alumina vs aluminium can alter these dynamics.We expect the front-end to face margin compression under our base case scenario,while the back-end is likely to enjoy margin expansion on a relative basis.Bauxite and alumina:Combined EBITDA margin Primary aluminium EBITDA margin Source:Company data,HSBC estimates Source:Company data,HSBC estimates The charts below give an indication of the relevance of the various companies aluminium divisions to total EBITDA.The diversified business models of Rio Tinto,South32 and Vedanta stand out as their aluminium contribution is relatively lower than the pure-plays.Notably,the aluminium divisions of these three companies tend to offer EBITDA margins below the company average.Hindalcos exposure to primary aluminium is via an integrated upstream business and its unique characteristic of holding a stake in the aluminium products manufacturer,Novelis,which contributes close to c60%of its consolidated EBITDA.Exposure to aluminium division Aluminium division and company level EBITDA margin in CY19e/FY20e Source:Consensus from Refinitiv Eikon for Alcoa and Hydro,HSBC estimates Source:Consensus from Refinitiv Eikon for Alcoa and Hydro,HSBC estimates 0%10%20%30%40%50%Rio TintoSouth 32HNDLNalcoVEDChalcoChina HongqiaoAlcoaHydroCY18/FY19eCY19/FY20e0%20%40%60%Rio TintoSouth 32HNDLNalcoVEDChalcoChina HongqiaoAlcoaHydroCY18/FY19eCY19/FY20e0%20%40%60%80%100%Rio TintoSouth 32HindalcoNALCOVedantaChalcoChina HongqiaoAlcoa*Hydro*Revenue CY2019e/FY2020eE