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Chalco set to tighten expenses

By Wang Lan (China Daily)
Updated: 2008-09-02 11:14

Xiao Yaqing, chairman and CEO of Chalco, presides over a press conference to mark the announcement of the company's interim results in Shanghai yesterday. [Agencies]

Aluminum Corp of China Ltd, or Chalco, the country's largest aluminum producer, yesterday said it would cut costs but will continue to explore overseas acquisition opportunities.

The company has suffered a profit drop of over 65 percent as a result of high production costs, output disruptions and oversupply in the market.

"Chalco will postpone the completion of some projects and reassess new projects to tighten control on expenditure and ensure sufficient working capital," said Xiao Yaqing, chairman and CEO of Chalco, at a news briefing yesterday.

Xiao also said the company is considering a plan to spin off its copper business for a separate stock listing but refused to elaborate.

He said Chalco would step up the integration of the domestic processors it acquired to increase profits so that they can make greater contributions to the earnings of the listed company.

The company on Friday posted a net profit of 2.4 billion yuan for the first six months of 2008, down 65.56 percent year-on-year. Earnings per share plunged 68.33 percent to 0.562 yuan.

Xiao attributed the profit drop to the "unexpectedly" sharp increase in production costs. "The sharp rise in production costs resulting from the rising prices of mineral resources, coal and electricity have combined to shrink our profit margin."

Declining aluminum prices because of oversupply and a slowdown in demand growth in the past months have also squeezed the margins. Since July, the firm has cut spot alumina prices twice by a combined 25 percent.

Xiao said the company would raise the proportion of self-produced bauxite ore to 50 percent of the total material resources from the current level of 25 to 32 percent, to reduce its reliance on imports.

Aluminum Corp of China, the parent company of Chalco, is investing in the Aurukun bauxite mining project in Australia's northeast and in several smelter projects such as in Saudi Arabia.

Industry analysts said a number of small smelters and processors would be put out of businesses because the current spot prices of aluminum products have dropped below the level of their production cost.

Le Yukun, vice-president of the research department at Bank of China International Ltd, said: "The persistent decline of spot metal prices plus the soaring mineral resources and energy costs have eroded the profits of smelters and processors."

He added that further cost increases resulting from rising energy prices would continue to trouble metal producers in the second half of the year.

The total domestic output of electrolytic aluminum in 2008 is expected to increase 15.4 percent to 14.5 million tons, which would exceed projected demand of 14 million tons by a small margin, according to Chalco figures.