Fitch Ratings affirms Chinese Aluminium producer China Hongqiao at 'BB-'; Outlook remains Stable

Fitch Ratings has affirmed Chinese aluminium producer China Hongqiao Group Limited's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BB-'. The Outlook remains Stable.

Hongqiao's ratings indicate its position as one of the world's largest aluminium smelters, with a competitive cost base braced by sizeable economies of scale and low input costs. Hongqiao's ratings are constrained by a possible surcharge on its captive power-generation assets, which could significantly increase its production costs.

The Stable Outlook exhibits the expectation that Hongqiao's industry-leading profitability will allow it to maintain net leverage at a level that is comparable with its rating, even against the current backdrop of weakened domestic economic activity and depressed commodity prices.

A substantial operating scale and first-quartile cost position protected Hongqiao against significant pandemic-related losses stemming from suppressed manufacturing activity and plunging commodity prices. The company's aluminium profit quickly rebounded when the domestic economy opened up in April and commodity demand picked up, which drove down inventory and raised prices.

Hongqiao has a less sophisticated range of products than Alcoa, but it maintains a comparable margin due to the scale and efficiency of its core aluminium smelting business. Alcoa has a lower FFO leverage than Hongqiao, but it is expected the gap to be narrow.