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Chalco posts $510 million first-half loss
Aluminum Corp of China (Chalco) posted a huge loss Saturday for the first half of 2012 amid an oversupply of aluminum globally, which has dragged down prices.
Chalco, China's top producer of aluminum, recorded a loss of 3.25 billion yuan ($510.25 million) for the first six months of this year, compared to a profit of 413 million yuan during the same period in 2011.
The losses were incurred by falling market prices of aluminum products, rising costs of raw materials and higher financial expenses caused by interest rate hikes, the company said in a statement filed with the Shanghai Stock Exchange.
About 80 to 90 percent of aluminum producers in China are losing money because of falling prices, according to Jia Mingxing, vice chairman of the China Nonferrous Metals Industry Association (CNIA).
Chalco said it expects to record a loss for the first three quarters of 2012, as aluminum prices are likely to remain at a low level.
"Demand for aluminum mainly comes from the property, automobile and home appliance sectors, and these sectors still face downward pressure due to policy curbs and weak domestic consumption," Zhang Qing, an analyst at Shandong-based commodity consultancy Sublime China Information, told the Global Times.
Analysts said the industry has been affected by high electricity prices, as well as global overcapacity in aluminum production.
"Electricity costs account for nearly 45 percent of the total production costs of aluminum," Wang Lixin, a researcher at umetal.com, a nonferrous metals industry website in Beijing, told the Global Times.
"Chalco mainly purchases electricity from the State Grid, and the price is higher than for electricity from local power plants," Zhang said.
Chalco is stepping up its efforts to buy thermal power plants. The producer announced on August 13 that it plans to spend 2.02 billion yuan in buying a 35.3 percent stake in Ningxia Electricity Power Group, a move that analysts said was aimed at reducing electricity costs.
Meanwhile, the global overcapacity has forced some big foreign producers to reduce production.
Russia's UC RUSAL, the world's largest aluminum producer, plans to reduce its output by 275,000 tons this year, Oleg Mukhamedshin, the company's deputy chief executive, said Saturday during a visit to Beijing.
Other top producers such as Rio Tinto Group also announced similar plans earlier this year.
"Some domestic aluminum companies' plans to cut production were interrupted by local governments, which offered lower electricity prices to encourage them to maintain production," Zhang said.
China should develop and produce more high-end aluminum products, which could be used in aeronautics and astronautics, as well as machinery manufacturing, State Councilor Ma Kai said at an industry forum held by the CNIA Saturday in Beijing.
On Saturday, RUSAL also signed a memorandum of understanding (MOU) with the CNIA. According to the MOU, the Russian company will cooperate with its Chinese counterparts on electricity-saving in aluminum production and innovative production methods.
Chinese aluminum companies are also welcome to invest in Russia, as electricity prices in Russia are relatively low, Mukhamedshin said.
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