Chalco Posts Second-Quarter Loss as Costs Jump and Aluminum Prices Fall

Aluminum Corp. of China Ltd., the nation’s biggest producer of the metal, posted a loss for the three months ended June, the fourth loss in six quarters, because of rising costs and falling prices.

Net loss was 96 million yuan ($14 million), according to Bloomberg calculation derived from the Beijing-based company’s half-yearly statement. It had a loss of 1.6 billion yuan in the same period a year ago, and a profit of 627 million yuan in the first quarter this year.

Metals demand slowed in China, the world’s biggest consumer, in the second quarter as the government introduced measures to curb property speculation. The nation, seeking to cut industrial overcapacity, also ended discounts on electricity and doubled surcharges for energy-intensive companies.

“Almost all Chinese aluminum producers became unprofitable in May after electricity costs increased and aluminum prices dropped,” said Heng Kun, an analyst at Essence Securities Co.

Chalco, as the company is known, fell 0.9 percent to HK$6.55 in Hong Kong today. The announcement came after the market closed. The stock was the second-worst performer on the benchmark Hang Seng index this year. The stock dropped 3.2 percent to close at 10.39 yuan in Shanghai.

Costs of sales surged 86 percent in the first half, and financial costs increased 24 percent, the statement said.

Costs Concerns

“We’ll probably cut profit estimate on cost concerns,” said Owen Liang, a Shenzhen-based analyst at Guotai Junan Securities Co.

Chairman Xiong Weiping is seeking to diversify from aluminum as overcapacity in China crimps profit margins, and last month offered $1.35 billion to buy a stake in Rio Tinto Group’s Simandou iron ore project in Guinea. In March, he said the company is seeking investments in coal and studying building plants in Saudi Arabia to benefit from cheaper power.

Aluminum prices dropped to as low as 14,080 yuan a metric ton in Shanghai on June 7, the lowest since July 2009, as a sovereign debt crisis in Europe raised concerns of a slower global economic recovery. Prices have dropped below output costs, Luo Jianchuan, president of Chalco, said on June 8 after the government raised the electricity rate.

The company posted a profit of 531 million yuan, or 0.04 yuan a share, for the six months ended June, compared with a loss of 3.5 billion yuan, or loss per share of 0.26 yuan, a year ago the company said in today’s statement. Two analysts surveyed by Bloomberg had a mean profit estimate of 728.5 million yuan. First-half sales more than doubled to 59.8 billion yuan.

Global Surplus

Chalco sold aluminum at an average 13,575 yuan a ton in the first six months, up 25 percent from a year ago, the statement said. Alumina sales price averaged 2,427 yuan a ton, up 39 percent from a year ago, the statement said.

The global aluminum surplus will be more than predicted this year because of production expansion by China, the biggest supplier and consumer, said Sumitomo Corp. Chinese demand may rise 21 percent while production will increase by 29 percent from 2009, according to Japan’s third-largest trading house.

The Chinese government this month ordered Chalco, Hebei Iron & Steel Group and more than 2,000 companies to shut outdated plants by September. Three units of Chalco should shut plants with capacity of 120,000 tons, or 3 percent of the company’s total, it said.

Chalco will meet the requirement and has a plan to cut more outdated capacity by year end, it said Aug. 9.

--Xiao Yu. Editor: Tan Hwee Ann, Frank Longid.

To contact the Bloomberg News staff on this story: Xiao Yu in Beijing at yxiao@bloomberg.net

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