China's Chalco suffers bigger than forecast Q4 loss

Aluminum Corp of China Ltd (Chalco) reported a bigger than expected fourth-quarter net loss of 729.6 million yuan ($115.3 million) on Friday, showing the impact of lower metal prices and higher costs, and warned of losses in the first quarter of 2012.

Chalco, the country's top aluminium maker, had said in January that 2011 net profit would fall more than 50 percent, implying a fourth-quarter loss of more than 600 million yuan.

"In 2012, the recovery of the global economy will still be subject to certain uncertainties and risks of economic downturns arising from the euro debt crisis," Chalco said in a statement to the Hong Kong stock exchange.

The company also said it expected to post a loss in the first quarter.

China is still in the process of urbanisation and industrialisation, which provides a promising prospect for the aluminium market, it said.

But analysts said slower economic growth in China, the world's largest producer and consumer of the lightweight metal, and continued weakness in the country's property market were likely to put pressure on aluminium prices.

Construction is the biggest driver for aluminium demand in China, accounting for 36 percent of domestic consumption in 2010, followed by the power and transport sectors.

Earnings of many aluminium producers around the world have been hit by a supply glut and weakening demand on the back of the deepening European debt crisis and global economic slowdown. Some producers, including top U.S. producer Alcoa Inc, have announced reduced smelting capacity to weather the downturn.

The benchmark third-month aluminium contract on the Shanghai Futures Exchange has rebounded about 3 percent this year to 16,260 yuan per tonne, but still below Chalco's production cost of about 16,800 yuan estimated by Morgan Stanley. The price had lost 4.3 percent in the fourth quarter alone.

MOUNTING DEBT

Analysts said high interest expenses would continue to erode Chalco's profitability.

Chalco's net finance costs for 2011 jumped 32 percent to 3.3 billion yuan and its current liabilities exceeded its current assets by about 12.39 billion yuan at the end of last year.

Its debt to asset ratio rose to about 63 percent from 59.5 percent in 2010 as it borrowed to fund an aggressive expansion plan over several years.

In a third attempt to tap the so-called A-share market with an issue of additional Shanghai-listed A shares, the company earlier this month lowered its fundraising target to a maximum of 8 billion yuan ($1.26 billion) from an original goal of 10 billion yuan in 2009.

Chalco's quarterly loss was bigger than an average forecast for a 612 million yuan loss from seven analysts polled by Reuters, and compared with a net profit of 365.2 million yuan a year earlier, based on Reuters calculations.

For the whole of 2011, Chalco reported a net profit of 237.97 million yuan, down 69 percent from profit of 778.01 million yuan for 2010.

Chalco's Hong Kong-listed shares were up 0.5 percent on Friday ahead of the results. The stock has risen 20 percent this year as the price of the metal rebounded, slightly outperforming the Hang Seng Index's 16 percent gain. ($1 = 6.3300 Chinese yuan)