Chalco's price cuts erode H1 net

FIRST-HALF earnings at Aluminum Corp of China Ltd fell 5.15 percent after it cut prices of alumina, which is used to make aluminum, as smaller domestic rivals increased capacity.

Net income fell to 6.4 billion yuan (US$843 million), its first on-year decline in five years, the domestic industry leader said. But the result was still better than a median forecast of 5.6 billion yuan in a Bloomberg News analysts' survey.

"The result is better than our earlier expectations, and we're optimistic over second-half earnings should the alumina price stay at current level, or even a bit lower," Chairman and Chief Executive Officer Xiao Yaqing told a press conference yesterday in Shanghai.

Chalco's external selling price of alumina fell 25.4 percent in the first half from the same period a year ago, which eroded its revenue by 3.6 billion yuan.

Xiao said the alumina price could stay at a reasonable level in the second half of the year because of expansion in aluminum capacity and limited bauxite resource. He said Chalco, as the firm is known, will focus on developing bauxite mines at home and abroad.

Bauxite is refined into alumina and roughly two tons of alumina can produce one ton of aluminum, which is used in beverage cans and airplane parts. Chalco is the world's No. 2 maker of alumina, its core product.

Industry analysts have said alumina and aluminum prices could fall on increasing supply while global demand is likely to stay robust.

Chalco's revenue rose 31.4 percent to 36.5 billion yuan in the reporting period as sales volume increased.

Chalco's operating profit of its alumina sector fell 43.5 percent to 4.9 billion yuan in the first half, while that of the primary aluminum segment surged 189 percent to 4.5 billion yuan, according to its report.

"The big jump in profit contributed by its primary aluminum business helped optimize Chalco's structure balance, which could hold its earnings steady," Orient Securities Co analyst Yang Baofeng wrote in a research note.

Chalco has been acquiring smaller players amid a domestic industry consolidation to boost global competitiveness. It has bought out and delisted Shandong Aluminum Industry Co this year and recently won approval to absorb Lanzhou Aluminum Co the same way. Xiao expected the Lanzhou deal to be finished by the end of the year.