Chalco shares mark 3-month low on earnings fears

HONG KONG, June 12 (Reuters) - Shares in Aluminum Corp of China Ltd (2600.HK: Quote, Profile, Research), the world's No. 4 producer of the metal, dived 8 percent on Thursday to their lowest since March, as investors fled on fears of mounting costs, including for electricity, and dwindling margins.

Analysts this week called attention to soaring production costs, particularly for alumina -- Chalco's main product -- and falling prices as supply swells.

Underscoring investors' concerns, the government of the northeastern province of Shandong on Thursday announced it would raise power tariffs 70 percent for industrial users during peak useage hours [ID:nHKG330505].

The surprise move raised the possibility that other provinces would follow suit in relaxing state-set electricity prices.

Electricity is a major cost input for aluminium smelters and Chalco operates 80,000 tonnes of smelting capacity in Shandong through a subsidiary, and more than 1 million tonnes of alumina.

The firm's shares dived nearly 8 percent -- its biggest percentage loss since Jan. 22 -- to a low of HK$10.88 before bouncing back to stand 6.9 percent lower at midday, underperforming a slightly weak market .HSI.

"China's alumina refineries could see their gross margins further squeezed by surging bauxite import prices, ocean freight rates, coal prices and other input prices," investment bank CICC's Shenwei Ding wrote on Wednesday.

This month, Chalco, also the world's third-largest producer of alumina, slashed spot alumina prices by 17 percent in its first such reduction since December. 

Spot prices of alumina, the raw material for the production of primary aluminium, have fallen more than 20 percent this year to around 3,500 yuan a tonne in China, hit by increased production from Chinese refineries, including Chalco's.

Deutsche Bank this week estimated that production costs for alumina -- the firm's main product -- had surged 24 percent between January and April because of the rising cost of bauxite, which yields alumina.

And DBS on Wednesday lowered its estimate on Chalco's 2008 earnings by 30 percent. (Reporting by Edwin Chan; editing by Anne Marie Roantree)

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