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Chalco shares tank on profit slump

By Zhou Yan (China Daily)
Updated: 2009-03-31 07:50

Shares of Aluminum Corporation of China Ltd (Chalco) dropped heavily yesterday on both the Shanghai and Hong Kong bourses after it released a worse-than-expected 2008 earnings report on Sunday.

Related readings:  Chalco profits fall but analysts optimistic  Chalco profit down 99% in 2008, expecting loss in Q1  Chalco raises spot alumina prices 10%

The company's A share sank 3.76 percent to close at 10.49 yuan in yesterday's trade while in Hong Kong, it shed 11.97 percent to close at HK$4.57.

The country's largest alumina producer said yesterday that it will also trim capital expenditure by 34 percent to 13 billion yuan this year, and will focus on projects under construction.

Chalco posted a 99.91-percent decline in profit to 9.23 million yuan on shrinking global demand, aluminum price drops amid natural disasters, and warned of a net profit loss for the first quarter of this year.

The Chinese metals firm realized 76.7 billion yuan in revenue last year, down 9.94 percent from 2007, and its earnings per share (EPS) sank 99.92 percent to 0.00068 yuan.

"The plummeting product prices, declining sales, and the rising price of raw material gave rise to losses of 600 million, 959 million, and 2.86 billion yuan respectively last year," said Luo Jianchuan, executive director of the company.

The company has also cut back alumina production by 40 percent to beat shrinking demand.

"The de-stocking of high-priced inventory over January and February, and the continuing slowdown of global demand will make our company to post losses for the first quarter of 2009," Luo said, adding that Chalco will finish its de-stocking by the first quarter.

On the London Metal Exchange (LME), aluminum inventory increased by 12,875 tons, to 3.47 million tons, on Friday, the highest since 1994. The price of the metal has dropped over 56 percent from its all-time high last July, to touch $1,442 a ton last Friday.

"As China's aluminum production giant, Chalco has higher production capacities than its domestic counterparts. It will therefore suffer a bigger loss under the current market conditions. We still haven't seen any pickups in global and domestic demand during the traditional peak time of the industry, from March to May, so far," said Wang Lixin, an analyst at Umetal.com.

"The aluminum industry continues to face weak demand and oversupply problems, with most smelters making losses at current prices," said Jing Ulrich, chairwoman of China Equities at JPMorgan.

Luo said Australia's 90-day-extension for the review of Chalco's parent's $19.5-billion offer to buy Rio Tinto was a "normal delay", and will not affect the review process much.