Chalco first-half aluminum output falls more than 8% as prices sag; profits fall

BEIJING (Reuters) - Chinese aluminum giant Chalco's 601600.SS2600.HK production of the metal fell more than 8% in first-half 2019 from the same period a year earlier, data showed on Wednesday, highlighting the impact of low prices on Chinese smelters.

Chalco, formally known as Aluminum Corp of China Ltd, said primary aluminum output was 1.89 million tonnes in January-June, down from 2.06 million tonnes a year earlier. The firm disclosed the drop in a presentation to analysts, reviewed by Reuters, the day after reporting a slide in first-half profit.

That output level was just ahead of Russian rival Rusal 0486.HK, which produced 1.87 million tonnes in the first half, but below Chinese private-sector competitor China Hongqiao Group's 1378.HK 2.86 million tonnes. China is the world's biggest producer of aluminum.

Chalco’s production of alumina, the substance used to make aluminum, rose 3.2% year-on-year to 6.82 million tonnes, according to the presentation.

The company did not immediately confirm numbers contained in the presentation, which also showed Chalco’s average aluminum sales price in the first half was 13,778 yuan ($1,942.53) a ton, down 4.4% from a year earlier.

Shanghai aluminum prices SAFcv1 struggled to move away from two-year lows in the first six months of 2019. That led smelters to reduce output in a bid to cut losses and prices are now up to around 14,300 yuan after flooding at Hongqiao's premises earlier this month and a separate outage in Xinjiang.

In January, Chalco closed a 200,000 tonnes per year plant in Shandong and the following month said it would transfer another 190,000 tonnes of capacity from a unit in Shanxi in northern China to an affiliate in the southwestern province of Yunnan.

On Tuesday Chalco said first-half net profit fell 14% year-on-year to 705.8 million yuan ($99.51 million) due to lower aluminum prices and higher costs.

Overall revenue rose 15% to 94.9 billion yuan despite a 10% drop in the primary aluminum segment as trading revenue increased by 23%.

In the second quarter alone, Chalco’s net profit was 260.8 million yuan, according to Reuters calculations, down 52.7% from a year earlier, while revenue was up 11.3% year on year.

“Due to the trade friction between China and the United States, global economic growth slowed down, the manufacturing industry was depressed and the consumption market was sluggish,” Chalco said in a filing to the Shanghai Stock Exchange.

Meanwhile, operating costs increased by 17% year on year to 88.5 billion yuan, partly due to higher freight costs on imported coal, which is used to generate electricity for the energy-intensive aluminum smelting process.

The company also faced higher management expenses after receiving lower payments for “zombie” enterprises, or unprofitable and indebted state-run firms.

Reporting by Tom Daly; editing by David Evans and Kenneth Maxwell