Chalco Swings To Losses

The world's biggest aluminum company, Aluminum Corporation of China Ltd.  (Chalco), recorded net losses of $1.11 per ADR (RMB0.3433 per share) for the full year 2009 in contrast to net earnings of $0.004 per ADR (RMB0.0014 per share) in 2008. Lower selling prices and weak demand coupled with high costs drove losses for Chalco. 

Management and financial costs climbed 19% and 25%, respectively, in 2009, as the company restructured its retirement plan and increased its borrowings. Operating costs, however, declined 2.65%. 

Revenues plunged 8.4% year-over-year to $9.05 billion (RMB70.3 billion) on the back of lower selling prices. Although selling prices of alumina and aluminum improved slightly in 2009, these were still lower than 2008 levels. Alumina production of 7.78 million tons in 2009 represented a year-over-year decrease of 13.8%. The output of alumina chemicals was 1.03 million tons, down 1% from 2008. Production in the Aluminum Fabrication segment was down 27.9% to 412,600 tons. Primary Aluminum increased 5.8% to 3.44 million tons. 

Segment Results 

Alumina Segment: The Alumina segment formed 29% of the total sales in 2009. Revenues in the segment were $2.6 million (RMB20,151 million) for 2009, down 35.5% year-over-year on a 28.5% decline in average selling price of alumina to $250 per ton (RMB1,939 per ton) for 2009. Sales volume of alumina, however, improved by a modest 4% to 4.4 million tons in 2009. The segment reported the highest losses in 2009 − an operating loss of $315 million (RMB2,449 million) as opposed to an operating income of $190 million (RMB1,472 million) in 2008. 

Primary Aluminum Segment: About 70% of the total revenues in 2009 were generated from this segment. Revenues in the segment, however, decreased 4.9% year-over-year to $6,324 million (RMB49,098 million) for 2009. Average selling price of primary aluminum declined 19.7% to $1,524 per ton (RMB11,835 per ton), while sales volume of primary aluminum products were up 23% to 3.8 million tons in 2009. Operating profit in the segment decreased over 80% to $11 million (RMB86 million) for 2009. 

Aluminum Fabrication Segment: The segment formed about 13% of the total revenues. Segment sales decreased 17.3% year over year to $1.2 billion (RMB9.1 billion) for 2009. Operating loss increased 92.5% from $41 million (RMB318 million) in 2008 to $79 million (RMB612 million) in 2009. 

As of Dec 31, 2009, Chalco's cash and bank balance more than halved to $1.0 billion (RMB7.9 billion) from $2.1 billion (RMB16.3 billion) at the end of 2008. 

Management Guidance 

Chalco expects aluminum prices to remain volatile, going forward. Aluminum demand, however, is expected to improve. The company plans to increase its electrolytic aluminum production by 15.1% year-over-year in 2010.