Chalco 2011 profits plunge on falling prices

Net profit of Aluminum Corporation of China (Chalco), the country's largest aluminum producer, dropped nearly 70 percent in 2011 to 238 million yuan ($37.65 million), the company said in a filing to the Shanghai Stock Exchange over the weekend.

In the second half of last year, the company reported a net loss of 174.6 million yuan, compared with a profit of 247.4 million yuan a year ago.

Chalco, which accounts for nearly 90 percent of domestic production, mainly attributed the profit slump to a decline in international aluminum prices and the global economic gloom.

"Aluminum prices have seen a drastic decline in the second half of last year, and the entire nonferrous metals industry has reported losses in the second half," said Wang Lixin, an industry analyst at umetal.com.

Aluminum prices in the London Metal Exchange declined to $1,962 per ton in the fourth quarter, dropping 30 percent compared with peak prices in the first half of last year, the company said.

Premier Wen Jiabao lowered the growth target for China's economy to 7.5 percent in 2012 at the beginning of this month. A slowdown in the domestic economy will further curb the demand for commodities like aluminum and steel, said Ma Zhongpu, chief analyst at commodity information portal chinaccm.com.

Li Dongguang, head of international trading at Aluminum Corp of China, Chalco's parent, said in February that China's demand growth of aluminum may slow to 6.6 percent this year from 11.5 percent in 2011.

Ma said that rising costs will also squeeze the profit margins of the industry.

Power prices account for nearly 40 percent of aluminum producers' costs. The National Development and Reform Commission in December raised power prices by an average 0.03 yuan per kilowatt-hour, which is expected to raise costs by as much as 500 yuan for producing a ton of aluminum.

In 2011, the production capacity of the industry exceeded 25.5 million tons, but domestic market only consumed some 19.5 million tons. The operating rate of the industry stood at about 83 percent last year.

"The sector has seen overcapacity since 2005, which has greatly eaten into producers' profit margins. The only way to avoid further losses is to curb new investments," noted Wang.