Chalco predicts 2012 loss, turns to coal

The Aluminum Corporation of China (Chalco) Wednesday predicted huge losses for 2012 due to the sluggish domestic aluminum market, but projected that its coal projects in China and abroad will bring profits in 2013.

In 2012, the price of aluminum dropped by some 7 percent year-on-year.

Chalco also reduced the year's production of alumina, a material used to make aluminum, to 1.7 million tons due to Indonesia's ban on bauxite product exporting, which caused alumina costs to increase by some 4 percent, Chalco said in a statement posted on the Shanghai Stock Exchange on Wednesday.

The company did not reveal the specific amount of its loss.

The gloomy aluminum market around the world likely caused Chalco to lose tens of millions of yuan per month in 2012, said Li Chaolin, a coal and energy expert with Anbound Consulting.

In 2013, the company said, it plans to respond to the losses by decreasing production costs in its aluminum operation and scaling up its investments in coal projects.

Chalco should shift its focus from aluminum to its coking coal operation, since coking coal is lucrative and rare in China at present, said Li.

Li said that coking coal in China, which mostly relies on imports, can be sold at a high 1,300 yuan ($209) per ton, compared to ordinary coal's price of 630 yuan per ton.

If the coking coal operation goes well in 2013, it should largely offset Chalco's current losses, but that hope is clouded by Chalco's dispute over its coal-for-loan deal with Mongolia's state-owned coal company Erdenes-Tavan Tolgoi (E-TT), he noted.

Under the deal, signed in July 2011, Chalco gave E-TT a loan of $250 million to develop its 7.5 billion ton Tavan Tolgoi coal project, with the loans to be paid back in coking coal worth the same amount.

Mongolia has suspended exporting coal to Chalco, claiming the agreed-on prices are lower than the cost of production, and threatened to seek other international buyers, Reuters reported Monday.

Chalco told the Global Times on Wednesday that if the Mongolian side breaches the contract maliciously, the company will pursue legal action.

E-TT refused to comment when contacted by the Global Times on Wednesday.