In June, it still lost 500 million to Chinalco to build a coal base to reduce costs

China Aluminum is seeking a strategic transformation through diversification and reshaping its earnings outlook. At the interim results briefing held yesterday, Chinalco executives stated that as the increase in coal prices greatly erodes product profits, Chinalco will establish 2-3 coal industry bases within three years to reduce costs. Chinalco also admitted that Chinalco still lost 500 million yuan in June this year due to the increase in electricity prices and the decline in aluminum prices brought about by real estate regulation in April.

“The lack of competitiveness of Chinalco's products is mainly due to the failure to form a complete industrial chain with the upstream. We purchase 20 million tons of coal each year, which accounts for 40% of the cost. The increase in coal prices has greatly eroded the profits of the aluminum business.” China Aluminum Chairman Xie Weiping stated at the briefing that Chinalco will fully launch the coal field and set up 2-3 coal bases in 3 years. He also disclosed that Chinalco has been seeking coal resources in Gansu, Shanxi, Inner Mongolia, and Qinghai provinces this year, but most of the projects are still under negotiation.

In the case of iron ore, Xiong Weiping revealed that the Simandou project in Guinea, jointly developed with Rio Tinto, still needs approval from the Chinese and Guinean governments.

Earlier it was reported that the Guinean government has still not approved the formal operation of the project because the conditions have not yet been settled. In response, Xiong Weiping responded that "At present Guinea is in the election period, but we believe that the project will be approved because it will bring benefits to all aspects of Guinea." Xiong Weiping told this reporter that the project is expected to benefit Chinalco's profits. Contributions will be made when the mine is put into operation 5 years later.

In the recent 2009 state-owned enterprise operations announced by the State-owned Assets Supervision and Administration Commission, Chinalco ranked the last place with a huge loss of 7.25 billion yuan, becoming the "most loser of state-owned enterprises." Chinalco confirmed yesterday that although the company achieved profitability in the first quarter of this year, it still suffered losses in the second quarter, including a single monthly loss of 500 million yuan in June. Chinalco attributed the reason to the decline in domestic aluminum prices brought about by real estate regulation and the increase in cost caused by rising electricity prices.

“After the introduction of the real estate control policy in April, the domestic spot aluminum price dropped significantly, and the minimum price in Shanghai reached 13,800 yuan per ton. The direct power supply policy has not yet been implemented. In the first half of the year, the company’s electricity price increased by more than 4 points per kilowatt hour, an increase of 20%. Both sides of the profit are under pressure.” Chinalco revealed that after July, with aluminum prices rebounding to 15,000 yuan/ton, business pressure eased, but there was still a loss, but the loss margin was significantly lower than in June. Currently, Chinalco is increasing energy efficiency through strategies such as increasing self-generation capacity. It is expected that the full cost of alumina and electrolytic aluminum will drop by 5% and 2.4% respectively, and the management “has confidence in achieving profitability throughout the year.”

Some analysts have calculated that China Aluminum's production cost is 15,500 yuan / ton, and its alumina and electrolytic aluminum production costs are within the industry's high-end. According to the semi-annual report released yesterday by Chinalco, although the net profit for the first half of the year was 531 million yuan, which was a year-on-year loss, it has already returned a loss of nearly 100 million yuan in the second quarter.