Bloomberg News

Chalco Swings to Quarterly Loss; First-Half Remains Unprofitable

April 27, 2012

Aluminum Corp. (2600) of China Ltd., the nation’s biggest producer of the lightweight metal, swung to a loss in the first quarter and said it may be unprofitable in the first half because of weak prices and higher fuel costs.

Net loss was 1.09 billion yuan ($173 million), compared with a profit of 331.2 million yuan a year earlier, the Beijing- based company said today in a statement to the Shanghai stock exchange. Sales climbed 19 percent to 33.6 billion yuan.

Aluminum prices in London fell 12 percent in the first quarter from a year earlier as a slowing global economy curbed demand amid an industry overcapacity. Chalco Chief Executive Officer Xiong Weiping plans to diversify into rare earths, coal and iron ore as profit margins shrink in its aluminum business.

“Chalco’s aluminum business may incur big losses this year because prices are below production costs,” Robin Tsui, a Hong Kong-based analyst with BOC International Holdings Ltd., said today before the earnings announcement. “The losses are factored into the share price. The proposed acquisition of coal assets may boost the balance sheet in two to three years.”

Chalco shares dropped 0.5 percent to close at HK$3.77 today in Hong Kong before the earnings announcement. The benchmark Hang Seng Index fell 0.3 percent. Chalco has fallen 49 percent in the past 12 months.

The company expects to record a first-half loss “because aluminum prices remains hovering around low levels and raw material and fuel costs stay high,” it said in the statement.

Chalco has been the most acquisitive of any aluminum company in the past year with four deals worth $1.26 billion, according to data compiled by Bloomberg.

SouthGobi Purchase

Earlier this month, it agreed to buy a stake of as much as 60 percent in Mongolian coal producer SouthGobi Resources Ltd. (SGQ) for C$925 million ($943 million), its biggest deal since it paid $1.35 billion for a stake in Rio’s Simandou iron ore project in Guinea in July 2010. Mongolia’s Mineral Resources Authority last week requested the suspension of projects, including SouthGobi Resources Ltd.’s Ovoot Tolgoi mine, while it reviews Chalco’s proposed purchase.

Chalco agreed this week to buy 29.9 percent of Mongolian coal exporter Winsway Coking Coal Holdings Ltd. for HK$2.39 billion ($308 million).

China raised retail power prices by an average 0.03 yuan a kilowatt-hour from Dec. 1, squeezing profits at aluminum smelters that don’t have access to cheaper fuel. That will raise costs by as much as 500 yuan for producing a ton of aluminum, equivalent to an increase of as much as 5 percent of total costs, Chalco spokeswoman Shen Hui said in January.

Capacity Cuts

Alcoa Inc. (AA:US), the largest U.S. aluminum producer, cut 12 percent of capacity in January and Chief Executive Officer Klaus Kleinfeld said April 11 the reductions “may not be the end.” United Co. Rusal, the world’s largest aluminum producer, is still looking at the possibility of closing smelters as prices decline, First Deputy Chief Executive Officer Vladislav Soloviev said yesterday.

Aluminum for three-month delivery climbed 0.7 percent to $2,106 a ton as of 8:38 p.m. Shanghai time today. The metal has declined 23 percent on the London Metal Exchange in the past 12 months.

Aluminum Corp. of China, Chalco’s parent, plans to invest 5.2 billion yuan to increase production capacity of rare earth metals in the southern province of Guangxi, company spokesman Yuan Li said April 5.

To contact Bloomberg News staff for this story: Helen Yuan in Shanghai at hyuan@bloomberg.net

To contact the editor responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net


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