Chalco to withdraw from aluminum processing

Aluminum Corporation of China Limited (Chalco), the country's biggest aluminum producer by output, announced plans recently to sell its aluminum processing assets, a development which underlines the industry's vexing overcapacity problems, analysts said Tuesday.

Chalco intends to transfer stakes in eight subsidiaries valued at 2.09 billion yuan ($340.3 million) through the Beijing Equity Exchange, according to a filing the aluminum producer submitted to the Shanghai Stock Exchange Friday. The eight units mentioned - Chalco Henan Aluminum Co, Chalco Southwest Aluminum Sheet Co, Chalco Southwest Aluminum Cold Rolled Sheet Co, Huaxi Aluminum Co, Chalco Ruimin Aluminum Sheet Co, Chalco Qingdao Light Metal Co, Chalco Sapa Special Aluminum Products (Chongqing) Co and Guizhou Chalco Aluminum Co - are all involved in the processing of aluminum. Chalco's statement added that its parent company, Aluminum Corporation of China (Chinalco), may potentially participate in the bidding for these assets.

Friday also saw Chalco issue notices saying that it will sell off complete ownership rights in its northwest aluminum processing branch as well as the alumina production lines at its Guizhou branch to Chinalco, assets which were evaluated at 1.66 billion yuan and 4.43 billion yuan respectively at the end of last year.

"Transferring these 8 billion yuan in assets shows that Chalco has decided to pull out of the aluminum processing sector in an effort to reduce losses and increase capital," a metal analyst at China Securities told the Global Times on condition of anonymity.

Last year Chalco wrote down a record loss of 8.23 billion yuan, a portion of which was attributed to several of the holdings it slated for sale last week. Chalco's tepid performance has carried up to the first quarter, when the company added another 975 million yuan in losses to its accounts.

"If it doesn't get rid of these assets, it will be hard for the company to achieve positive operational results this year due to cost pressures and the market's current supply glut," the anonymous analyst added.

"Chalco's decision also reinforces views that the aluminum industry has settled into a new status quo, where slim profits and weak market prices are now the norm for producers amid ongoing overcapacity issues," Zhang Chenguang, an analyst from Shanghai Metal Markets, an industry intelligence provider, told the Global Times Tuesday.

Abandoning draining assets to focus on higher-value areas such as alumina and electrolyzed aluminum is a smart move for Chalco, remarked Zhang, who also recommended that other processors should develop high-end products to increase their profit margins.