Competition erodes Chalco's dominance

PUBLISHED : Wednesday, 25 April, 2007, 12:00am
UPDATED : Wednesday, 25 April, 2007, 12:00am

Aluminum Corp of China (Chalco), the world's second-biggest producer of alumina, saw its dominance in the domestic sale of the raw material further eroded, as its key profit contributor faced increased competition.

Chalco yesterday said in the first three months, it produced 13.1 per cent more of the key ingredient to make aluminium than in the same period a year earlier, at 2.39 million tonnes from 2.11 million tonnes.

The output gave it a 53.1 per cent share of the nation's total 4.5 million tonnes, down from 64.4 per cent last year and 84.3 per cent in 2005.

Alumina refining accounted for 76.6 per cent of the company's operating profit last year.

The rapid erosion of Chalco's dominance was due to the coming on stream of a slew of refineries owned by local government and private entities. When Chalco floated its shares in 2001, it was the only alumina producer in the country.

Thanks to the new plants, the country's alumina output surged 62.4 per cent year on year to 4.5 million tonnes in the first quarter, up from 61 per cent to 13.7 million tonnes last year.

Compounding the effect of the declining market share, Chalco's average first-quarter alumina selling price fell 26.1 per cent year on year to 3,318 yuan a tonne.

International alumina prices peaked at US$650 a tonne in June last year and plunged to a low of US$200 in November before recovering to US$350 in March.

In order to offset some of the decline, Chalco - also the nation's largest aluminium smelter - has been expanding downstream. It recorded an 81 per cent jump in first-quarter aluminium output to 660,000 tonnes, after it boosted annual smelting capacity by 65.3 per cent to 2.48 million tonnes at the end of last year through mergers and acquisitions.

Chalco had a 22.6 per cent share of the national aluminium output of 2.91 million tonnes in the first quarter, up from 20.6 per cent last year and 13.4 per cent in 2005.

Chalco realised an average selling price of 20,328 yuan a tonne, up 1 per cent year on year - in line with the 1.5 per cent rise of the average three-month futures price to 20,180 yuan on the London Metal Exchange.

Chalco forecast in its A-share listing prospectus a 1.8 per cent drop in net profit this year to 11.1 billion yuan under mainland accounting standards, inclusive of the results of two Shanghai-listed units acquired on January 1. However, the mean estimate of 22 analysts polled by Thomson First Call showed net profit was projected to fall 15.1 per cent to 9.96 billion yuan from last year, based on international accounting standards.

In a research report, Lehman Brothers said Chalco's parent Chinalco might sell its 725,000 tonne-a-year aluminium smelting capacity and 760,000 tonne-a-year downstream aluminium processing facilities to Chalco this year and next year.


Chalco's market share in the mainland was 84.3 per cent in 2005

Chalco's share of the nation's 4.5 million tonnes in output in the first quarter 53.1%