Chalco shares drop on bigger than expected quarterly loss

Analysts were hoping for a loss four times smaller than the one announced by the world's third-largest producer of alumina; the group hopes to break even by year-end.

SHANGHAI/HONG KONG (Reuters) - 

Aluminum Corp of China Ltd (2600.HK: Quote), the world's No. 3 alumina producer, said it aims to break even by year-end after posting a bigger-than-expected quarterly loss, which sent its shares lower on Tuesday.

China's top alumina and aluminium producer, also known as Chalco (601600.SS: Quote), recorded gross losses in all segments in the first half of the year, resulting in higher production costs on a low utilisation rate, analysts said.

The company announced its results late on Monday, including a second-quarter loss that was four times bigger than analysts had expected. [ID:nPEK188870]

"The results are disappointing and it's a big miss against our forecast of a breakeven in the second quarter," said Becky Yuen, a research analyst at GuocoCapital.

Chalco shares retreated on Tuesday after the company's poor results shattered investor hopes for a speedy recovery. They were down 2.7% in Hong Kong and 5% in Shanghai at 0338 GMT.

But Chalco, whose state-owned parent Chinalco failed to clinch a $19.5 billion equity tie-up deal with Anglo-Australian miner Rio Tinto (RIO.L: Quote)(RIO.AX: Quote) in June, is optimistic about aluminium pricing.

Chalco forecast global aluminium prices to hold at $1,800 to $2,300 per tonne for the rest of the year against an LME aluminium price MAL3 of around $1,920 per tonne on Tuesday.

Domestic prices were expected to range from 14,000 yuan ($2,049) to 16,000 yuan per tonne, company president Luo Jianchuan told a news conference.

"We must work hard not to lose money in the second half and from the full-year perspective we will try to end the losses that we saw in the first half," Chalco chairman Xiong Weiping told reporters.

POOR Q2

Chalco reported a net loss of 1.63 billion yuan ($238.6 million) for April-June on weak demand and prices as the financial crisis battered aluminium producers and their clients in the automotive and construction industries.

It missed an average forecast of a 445 million yuan loss from six analysts polled by Reuters, and compared with a restated profit of 1.14 billion yuan in the same period last year.

For the first half, Chalco posted a loss of 3.52 billion yuan against a restated profit of 2.39 billion yuan a year earlier.

U.S. rival Alcoa (AA.N: Quote) also reported a third consecutive quarterly loss in July, but cost cuts helped the largest U.S. aluminium maker beat estimates by a large margin.

Optimism that aluminium demand and prices were rebounding helped Chalco's shares more than double this year, beating a 40% rise in the broader market .HSI in the year to date.

Chalco now trades at 1.9 times book value for 2010 with return on equity of 4% and 49.8 times 2010 earnings, Morgan Stanley estimated.

"The shares appear even less attractive to us compared with Alcoa at 25 times (p/e)," it said in a research note on Tuesday.

Chalco's plan to sell up to 1 billion new A shares and idled capacity restarts are expected to weigh on its shares.

China, the world's biggest consumer of aluminium, has led a recovery in demand, helped largely by Beijing's 4 trillion yuan stimulus package.

Aluminium hit a record high of $3,380 per tonne in July 2008 before collapsing to $1,300 per tonne in February amid fears of a further deterioration in the global economy.

But prices on the LME MAL3 and Shanghai SAFc3 exchanges regained some ground and have risen more than 25% this year on stronger demand for the metal that is used in transport and packaging. ($1=6.830 Yuan) (Editing by Chris Lewis)

© Thomson Reuters 2009 All rights reserved

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