中国铝业（02600） 　　Key takeaways 　　We attended Chalco’s reverse roadshow and visited the GuangxiPingguo Aluminum and Southwest Aluminum. Chalco has primebauxite resources, bringing the company cost advantage. Impactof rising coal price should also be limited thanks to Chalco’s lowratio of self-supplied power. Earnings could improve sequentially. 　　Recommendation 　　Guangxi Pingguo Aluminum owns one of the bestbauxite resources and has a significant cost advantage.In Pingguo Guangxi, bauxite mines are open-pit with ore gradeat 54% and an aluminum-to-silicon ratio at 9, well above theindustry average of 6. Bauxite production cost is only Rmb155/t(tax exclusive), lower than domestic average cost of Rmb250/t;total cost of self-produced alumina is Rmb1,400/t (excl. tax),lower than the domestic average level of Rmb1,800/t. 　　Leverage cost advantage to construct aluminumfactories and power plants in Guangxi. Guangxi is one ofthe largest bauxite and alumina sources in China. However, localaluminum companies are mostly small, while alumina producedhas to be sold to northeastern and northwestern regions withtransportation cost averaging Rmb100~200/t. Chalco plans toconstruct aluminum factories & power plants in Guangxi andleverage local alumina cost advantage to integrate the business. 　　Material cost rise limited; earnings could continue toimprove sequentially. Chalco’s power cost is relatively stablewhile alumina is self-supplied. The aluminum cost would onlyincrease by Rmb300/t if coal price increases by Rmb150/t. 　　Cost in 2017 could remain in the top half of the industry.Chalco’s power cost has been high historically. In 1~3Q16,Chalco’s alumina/aluminum production costs declined 16%/21%YoY. In 2017, cost could remain at the top half of the industrydue to power cost cut and higher efficiency. 　　Risks 　　Weaker-than-expected demand; large drop in metal price.