Chalco to benefit from aluminium capacity cut

Mark Mobius says firm is a good bet amid government plan to reduce overcapacity

PUBLISHED : Wednesday, 31 July, 2013, 12:00am
UPDATED : Wednesday, 31 July, 2013, 4:43am

Investor Mark Mobius said Aluminum Corp of China is a "good long-term bet" as one of the few producers of the metal set to benefit from the government's plans to reduce overcapacity.

The mainland ordered more than 1,400 firms in 19 industries including aluminium to ease oversupply, according to a July 25 statement from the Ministry of Industry and Information Technology.

While Chalco, China's biggest aluminium maker, would be able to raise the capital it needed as the government began to "winnow out" smaller producers, other companies would "fall by the wayside", Mobius said.

"Chalco will be the one left standing," said Mobius, executive chairman of Templeton Emerging Markets. "The government doesn't want to see this excess capacity in the country."

Chalco's American depositary receipts (ADRs) fell 2.7 per cent to US$8.16 in New York on Monday, extending this year's drop to 31 per cent. The ADRs traded 0.3 per cent below the Hong Kong shares. Each ADR equals 25 underlying shares in the Beijing-based company.

Units of Franklin Resources, Templeton's parent company, have a combined stake of about 31 per cent in Chalco.

The ministry raised the minimum output requirement on alumina projects using imported bauxite to 800,000 tonnes from 600,000 tonnes in rules set in 2007, in new industry guidelines released last week. Producers must use their own money to fund at least 40 per cent of their projects and are encouraged to have integrated hydropower or coal-fired power plants.

Chalco's coal-powered plants were helping the firm become "vertically diversified", Mobius said.

Chalco reported a net loss of 975 million yuan (HK$1.2 billion) in the three months to March while sales rose 1.9 per cent to 34.2 billion yuan. The loss may narrow to 5.8 billion yuan this year from 8.2 billion yuan in 2012, according to the average estimate of analysts.