Rising costs, falling prices halve Chalco profit

PUBLISHED : Tuesday, 07 October, 2008, 12:00am
UPDATED : Tuesday, 07 October, 2008, 12:00am

Aluminum Corp of China (Chalco), the country's biggest alumina and aluminium producer, estimates its third-quarter profit has declined more than 50 per cent on rising costs and falling prices.

Rising raw material and fuel prices had raised production costs, while the global financial crisis had brought down the prices of its products, Chalco said yesterday.

It reported a net profit of 2.04 billion yuan (HK$2.3 billion) in the third quarter last year. The company issued a profit warning in June before announcing a 65 per cent slump in first-half profit in August.

The Beijing-based company said it had cut spot alumina price by 9.4 per cent to 2,900 yuan a tonne, its third reduction since June. It lowered alumina prices 8.6 per cent on August 1 and 16.7 per cent on June 3 despite rising bauxite prices.

Alumina is refined from bauxite and then smelted into aluminium, the metal used to make cans and cars.

Chalco's investor relations manager Zhang Qing said the latest price cut would bring its product prices in line with those of its rivals.

'Alumina prices are still under pressure at the new level. But since many alumina refiners are operating near break-even points and some are even making losses, there isn't much room for further cuts,' Ms Zhang said.

Helen Wang, an analyst at DBS Vickers, said alumina prices had probably bottomed out for this year but the global financial turmoil and economic uncertainties made predictions for next year difficult.

Chalco might want to use the price cut to squeeze out local rivals as the company, which controls most bauxite reserves on the mainland, could still make profits at this level, Ms Wang said.

Chalco shares fell 5.56 per cent to close at HK$4.25 yesterday to a four-year low before the profit warning. The stock has fallen 46 per cent in the past three months.

Unkindest cut

Chalco's latest price cut will bring its prices in line with those of rivals

In its third reduction since June, the company has cut spot alumina price by: 9.4%