Aluminium company shares rise as Shandong cuts output by a third to reduce pollution

Smelters in east Shandong province will cut production by about 30pc in the four months starting from mid-November, shares surge on concerns over lack of supply

PUBLISHED : Wednesday, 02 August, 2017, 5:32pm
UPDATED : Wednesday, 02 August, 2017, 10:52pm

Shares in Aluminum Corp of China surged by as much as the 10 per cent daily limit in Shanghai on Wednesday on concerns over lack of supply after the nation’s biggest province producing the metal said it will cut capacity by at least a third to reduce pollution.

Other aluminium producers also rose. Shandong Nanshan Aluminum gained 4.2 per cent to 3.75 yuan in Shanghai, Yunnan Aluminum climbed 4.6 per cent to 10.69 yuan in Shenzhen, while Henan Zhongfu Industrial added 3 per cent to 6.15 yuan. The benchmark Shanghai Composite Index finished 0.2 per cent lower.

Aluminum Corp, China’s biggest aluminium producer also known as Chalco, closed the day 7 per cent higher at 6.42 yuan at the close, the highest level since August 20, 2015. It rose to an intraday high of 6.60 yuan (US95 cents). The stock surged 4.9 per cent to HK$5.14 (US66 cents) in Hong Kong.

Smelters in east Shandong province will cut production by about 30 per cent in the four months starting from mid-November, to meet emission standards, GF Securities said in a research note, citing a document from the provincial government.

Plants that fail to meet those will be required to halt production, it said. The action may reduce aluminium output by 860,000 tonnes, according to the note.

Aluminium futures have advanced 17 per cent over the past year on the London Metal Exchange, as China intensifies a campaign to curtail excessive and outdated capacity in traditional industries, pushing up raw-material prices ranging from rare earth to coal and steel, due to strained supply.

A measure tracking China’s commodity stocks rose to an almost two-year high on Wednesday, as companies including Shaanxi Coal Industry and Jiangxi Copper forecast jumps in first-half earnings. The index is now valued at 21.4 times projected earnings for the following 12 months, the most expensive level since February, according to data compiled by Bloomberg.

Essence Securities analysts are positive on the policy implementation of cutting aluminium supply, saying there will be a reversal in the industry’s fundamentals and re-rating of aluminium stocks.

Chalco will probably post earnings per share of 0.18 yuan this year based on the average estimate of 11 analysts, according to Bloomberg data. It reported a per-share loss of 0.025 yuan last year.

Shandong is China’s largest aluminium-producing province, with a third of the nation’s total output, according to GF Securities.