Manufacturing Contraction Spurs Chalco Decline: China Overnight

Aluminum Corp. of China led declines in Chinese commodity stocks traded in New York as data signaled manufacturing in the world’s second-largest economy may shrink for a sixth month in April.

The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. sank 2.3 percent to 100.98 yesterday in New York, the lowest close since April 10. Aluminum Corp. plunged the most in seven weeks on concern a drop in Chinese and European output will curb demand for commodities. Petroleum and Chemical Corp. fell to a four-month low, trading at a discount to its Hong Kong stock, while PetroChina Co. also fell.

China’s purchasing managers’ index shrank to a preliminary reading of 49.1 in April, compared with a final 48.3 in March, HSBC Holdings Plc and Markit Economics said yesterday. A number below 50 points to a contraction. In the euro zone, China’s biggest trading partner, a composite index based on a survey of purchasing managers in services and manufacturing fell to a five-month low, Markit Economics said yesterday.

“Any weakness in China feeds directly into the commodity complex that extends to Chinese commodity producers,” Michael Shaoul, chairman of Marketfield Asset Management in New York, which oversees more than $1.6 billion -- including bets that Chinese stocks will decline -- said by phone yesterday. “The market has started to become nervous about the general status of China’s economy.”

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., snapped a four-day rally, losing 2.6 percent to $37, the largest one-day decline since March 14.

Chalco Tumbles

Beijing-based Aluminum Corp., China’s largest maker of the lightweight metal, agreed to buy 29.9 percent of Hong Kong-based Winsway Coking Coal Holdings Ltd. for HK$2.39 billion ($308 million), according to a statement to the Hong Kong stock exchange yesterday. The company known as Chalco will become the largest shareholder of Winsway, which imports Mongolian coal into China.

Chalco’s American depositary receipts sank 4.3 percent to $11.91, the biggest one-day loss since March 6. The ADRs, each representing 25 common shares in the company, traded 0.6 percent below Chalco’s Hong Kong stock, which fell 3.9 percent to HK$3.72 a share, the equivalent of 48 U.S. cents. The ADRs traded at a discount for the third day.

Aluminum prices sank, with the contract for three-month delivery of the metal sliding 1.1 percent yesterday on the London Metal Exchange to $2,059 a ton. Copper futures for July delivery slid 2 percent $3.634 a pound on the Comex in New York, on concern that demand will slow in China, the world’s biggest user of the metal. That was the biggest drop for a most-active contract since April 13.

Gas Prices

ADRs of China Petroleum -- known as Sinopec and the largest refiner in the country -- plunged 2.3 percent to $104.75, the lowest level since Dec. 20. PetroChina (PTR), the nation’s biggest oil producer and second-largest refiner, declined 1.9 percent to $143.36 in New York, the biggest one-day drop since March 28.

The Chinese government may reduce gasoline and diesel prices next month because a slowing economy has reduced demand for fuel, China National Radio reported, citing Zhang Bin, an analyst at researcher Chem99.com.

PetroChina’s ADRs traded at a discount to its Hong Kong stock for the fourth day, at 0.7 percent.

The Shanghai Composite Index (SHCOMP) retreated 0.8 percent to 2,388.59 yesterday, the biggest one-day drop since April 17. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong fell 2.2 percent to 10,810.48, the steepest decline since March 6.

‘Stimulate Further’

China’s preliminary PMI data has added to investor speculation that Chinese monetary authorities will take steps to stimulate the economy, Michael Gayed, chief investment strategist in New York at Pension Partners LLC, which advises on over $150 million in assets, said by phone yesterday.

“The market is feeling that China is going to have to start to initiate interest rate cuts and stimulate further,” Gayed said.

The People’s Bank of China has cut the amount of cash lenders must set aside as reserves twice since November to boost lending. Policy makers have kept interest rates on hold since July, while central banks in India and Brazil cut benchmark rates last week.

Sina Corp. (SINA), which runs a Twitter-like service in China, tumbled for the seventh day, the longest losing streak since June 2011. The company’s shares dropped 2.8 percent to $56.64 yesterday in New York, the lowest level in more than three months.

Baidu Earnings

Alicia Yap, a Hong Kong-based analyst at Barclays Capital lowered Sina’s 12-month price target to $66 from $70 yesterday.

Baidu Inc. (BIDU), China’s biggest online search engine, plunged 3.6 percent to $139.66, the biggest decline in two months. The company’s first-quarter earnings results are due today after U.S. markets close.

Beijing-based Baidu may report that sales for the three months through March rose 76 percent from a year earlier to 4.29 billion yuan ($680 million), according to the average estimate of 15 analysts compiled by Bloomberg. The company said on Feb. 16 that revenue will climb to between 4.2 billion yuan to 4.33 billion yuan.

Net income may jump 76 percent from a year ago to 1.88 billion yuan, according to the average analyst forecast. That compared with 2.05 billion yuan earned in the last quarter of 2011.

Solars Sink

Analysts at T.H Capital LLC in Beijing, led by Tian X. Hou, wrote in a report yesterday that Baidu’s first-quarter results may beat analysts’ predictions while maintaining a hold rating on the stock because “potential upside from the current level of expectation could be limited.”

LDK Solar Co. (LDK) tumbled the most among its Chinese solar peers traded in the U.S. as the Bloomberg Global Leaders Solar Index (BLGS) of solar stocks slid 2.4 percent in the gauge’s fourth day of declines.

LDK, based in Xinyu in China’s Jiangxi province, plunged 8.6 percent to $2.97, the lowest close in five months. Suntech Power Holdings Co. (STP), the world’s largest solar-panel manufacturer based in Jiangsu province, lost 4.6 percent to $2.49, the lowest level since Jan. 9. Trina Solar Ltd. (TSL), also based in Jiangsu province, declined 5.8 percent to $6.38.

Tempe, Arizona-based First Solar Inc. (FSLR), the world’s largest thin-film panel maker, was cut to sell from hold by Maxim Group LLC yesterday, on excess supply of polysilicon across the industry.

‘Panicking People’

“The manufacturing numbers out of China are apparently panicking people and downgrades don’t help either,” Michael Obuchowski, chief investment officer at First Empire Asset Management, which has $4.5 billion under management, said in an interview. Obuchowski sold shares of First Solar last year.

First Solar slid 6.8 percent to $19.25 in New York.

The Standard & Poor’s 500 Index (SPX) dropped 0.8 percent to 1,366.94 yesterday amid growing concern Europe’s debt crisis may continue to worsen.

Dutch Prime Minister Mark Rutte offered his cabinet’s resignation amid a revolt against spending cuts. French President Nicolas Sarkozy trailed challenger Francois Hollande in the first round of the nation’s presidential elections.

To contact the reporter on this story: Belinda Cao in New York at lcao4@bloomberg.net

To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net

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