Chalco profits fall to four-year low as pandemic brings bad debt writedowns

(Reuters) - Chinese aluminium maker Chalco posted its lowest annual profit in four years in 2020 as more than $200 million in impairment charges mostly due to pandemic-hit customers struggling to pay for products outweighed a big rally in metal prices.

The state-run company, formally known as Aluminum Corp of China Ltd, said in a filing net income fell 13.1% year-on-year to 741 million yuan ($114 million) in 2020. That is its worst annual result since a 368 million yuan profit in 2016, Refinitiv Eikon data show.

Revenues were down 2.2% at 186 billion yuan even as Shanghai aluminium prices rose more than 20% last year amid a strong rebound in demand in China, the world’s biggest aluminium market, after an initial coronavirus-led collapse.

Prices climbed further to a near decade high earlier this month but slumped as much as 6% on Tuesday on concerns China could release aluminium from state reserves.

Chalco attributed the revenue drop to a decrease in trade.

Net impairments totalled 1.41 billion yuan ($216.5 million), including 979 million yuan for customer bad debt and 433 million yuan for long-term assets after Chalco shut 135,000 tonnes of annual smelting capacity in Shandong.

“Due to the impact of the COVID-19 pandemic and changes in the external environment in 2020, some customers ... have encountered difficulties in their production and operation,” it said, putting the overall impact of impairments on net profit at 1.23 billion yuan.

Chalco’s primary aluminium production fell for a second straight year, by 2.6% to 3.69 million tonnes in 2020.

That is below private-sector China Hongqiao Group and Russia’s Rusal, which churned out 5.62 million tonnes and 3.76 million tonnes, respectively.

However, it gives Chalco parent Chinalco, which also controls regional producer Yunnan Aluminium, a world-leading group total of 6.1 million tonnes.

Chalco’s production of aluminium-making raw material alumina meanwhile rose 5.3% year-on-year to 14.53 million tonnes.

($1 = 6.5130 Chinese yuan renminbi)

Reporting by Tom Daly