Chalco Swings to Net Loss

Aluminum Corp. of China Ltd., also known as Chalco, said Friday it swung to a net loss for the first half of the year, as falling aluminum prices, a slowing domestic economy and higher expenses took their toll.

The unaudited result, included in an interim earnings briefing to the Shanghai Stock Exchange ahead of the formal release of the company's first-half figures on Aug. 24, bodes ill for Chalco's full-year outlook as it confronts oversupply and weak overall economic growth.

"At current aluminum prices, the profit for the second half is unlikely to be materially better than the first half," Barclays Research said in a note Friday.

London Metal Exchange three-month aluminum futures are down 22.6% from their peak this year in March. Domestic prices have shed 10.4% since the start of the year.

China's biggest alumina and aluminum producer by output said its net loss for the six months ended June 30 totaled 3.25 billion yuan ($512 million), reversing from a net profit of 413 million yuan a year earlier.

Revenue was up 9% at 71.70 billion yuan, compared with 65.97 billion yuan a year earlier.

As it struggles with weakness in the aluminum sector, Chalco has been looking to diversify its operations, including a high-profile attempt to buy Mongolia coal miner SouthGobi Resources Ltd. 1878.HK +2.00%

However, that push is also looking increasingly fraught with challenges.

On Tuesday, SouthGobi Chief Executive Alexander Molyneux told Dow Jones Newswires the company sees "no clear way forward" for Chalco's $920 million offer given the political opposition to the deal in Mongolia.

Ulan Bator suspended SouthGobi's mining licenses in June, citing national-security issues, and unveiled a new law to cap foreign investments in strategic sectors including resources, moves widely seen as aiming to block state-owned Chalco from completing a deal.

"While the business model for Chalco's aluminum business appears significantly challenged, its attempt to diversify into other commodities, [such as] coal and iron ore, is expensive and fraught with risks, in our view," Barclays said.

Aluminum producers are also facing challenges in securing bauxite, a key raw material for aluminum production. Indonesia, China's top bauxite supplier, in mid-May introduced a 20% export tax on 65 unrefined mineral types including bauxite.