Chalco's alumina price hike fails to solve profit issues

Aluminum Corp of China Ltd (Chalco), the country's top aluminium maker, raised its spot price for alumina by 3.6 percent but the news failed to offset concerns that a production cut will hit its earnings, sending its shares lower on Friday.

Chalco raised the price of alumina, the key material for aluminium production, by 100 yuan to 2,900 yuan per tonne from Thursday, a price list showed on its website.

The news came after Chalco said it would cut alumina output capacity by 1.7 million tonnes, or 12 percent of its current capacity, after a change in Indonesia's bauxite policy affected supplies.

Chalco's shares fell 3.6 percent on Friday, making it the worst blue-chip performer and lagging a 0.1 percent gain in the broader market.

J.P. Morgan revised its earnings forecasts for Chalco to a loss from profit and downgraded the company's shares to "underweight" from "hold" as Chalco's supply of imported bauxite had been affected by the policy change in Indonesia.

The brokerage now expects Chalco to post a loss of 2 billion yuan ($314 million) in 2012 against an earlier forecast of a 122 million yuan profit, it said in a research report on Friday.

"With China's metal output remaining high despite industry losses, we believe domestic aluminium prices will struggle for traction," it added.

The price hike for alumina might not help the company much. Chalco was a relatively small seller in the spot market with the bulk of its alumina production for term deliveries that have been linked with domestic aluminium prices, sources at aluminium smelters said.

Aluminium prices fell to a five-month low last week with London Metal Exchange (LME) three-month hitting $1,969 on May 24, due to a supply glut and a slowing global economy.