Chalco Aims to Widen Income

Aluminum Corp of China Ltd (Chalco) aims to diversify into coal and iron ore in a bid to widen its earnings channel because higher costs have pushed the country's leading aluminum smelter into the red in the second quarter.

Chalco plans to build two to three coal production bases in the next three years, Chairman Xiong Weiping said. It also tapped the iron ore sector by investing US$1.35 billion in a joint venture project in Guinea last month.

"It will take about three years to achieve the strategic shift," Xiong said yesterday in Shanghai, noting rare earth is another sector Chalco is to diversify into.

Chalco's state parent, Chinalco, aimed to be a diversified metals firm. "The listed firm is an important platform and component for Chinalco's diversification effort," Xiong said, adding Chalco will be the main investment vehicle for coal.

Chalco posted a net loss of 96 million yuan (US$14 million) for the April-June quarter according to numbers derived from its interim results released on Monday, as higher power rates increased production costs and the government's tightening measures on the property sector slashed aluminum prices.

Chalco saw power costs jump 20 percent in the first half, blaming higher coal prices and the cancellation of preferential power rates.

But Chief Financial Officer Chen Jihua said Chalco is confident it will be profitable in the third quarter and in the second half of the year based on current metals prices.

But analysts cautioned recovery in demand would be a problem, calling Chalco a "prisoner" to the government's property policies. "Half of the demand is exposed to construction and autos, so aluminum demand is under sustained threat," a Citigroup report said, adding profit may not return till the fourth quarter.

Xiong sidestepped speculation that Chalco is among potential bidders for Canada's Potash Corp.

"We are not interested in everything," Xiong said.