China's Top Aluminium Maker Chalco Q3 Net Dives

Aluminum Corp of China Ltd, the world's No.3 alumina producer, said on Sunday its quarterly earnings plunged 92%, lagging forecasts, with its outlook clouded by high costs and sliding aluminium prices.

As China's largest producer of the metal tries to stabilise prices and cut costs, it has cut its aluminium capacity by 18% and alumina capacity by 10%.

But analysts say that is not enough to shore up prices of aluminium, which is widely used in the financially stressed construction and automobile industries.

"Chalco is likely to make a loss in the fourth quarter since Shanghai aluminium prices have come down to early 2003 level while costs remain high," Geoffrey Cheng, an analyst at Daiwa Institute of Research, said.

Shanghai's benchmark contract closed at 13,750 yuan (元) a ton on Friday and has lost 36% from its peak of 元21,495 in March.

The global aluminium market is heading for big surpluses in the next few years because smelters outside China have delayed cutting output despite weak demand and falling prices, analysts said.

The company, also known as Chalco, reported a net profit of 元182.9m ($26.7m) in the quarter ended September, down from a restated profit of 元2.29bn in the same period last year, under Chinese accounting standards.

The result lagged the company's forecast of a more than 50% drop in third-quarter net profit.

Its total revenue for the third quarter fell 7.9% to 元19.08bn but operating costs surged 46.5% to 元12.16bn.

Threats of another round of electricity tariff hikes in China and an oversupply of aluminium clouded the company's earnings outlook, analysts said.

"We think that Chalco's operating environment is likely to remain difficult for the next 2-3 years," Macquarie said in a recent research report.

The stock lost nearly half of its market value in the third quarter and underperformed an 18% drop in the blue chip Hang Seng Index. It has lost nearly 85% so far this year, making it the third worst performing stock on the benchmark index.

It closed down 14.5% at HK$2.48 on Friday.

By Alison Leung, Reuters.