Chinalco chief: Aluminum industry in 'tough times'

BEIJING--China's aluminum industry is facing 'tough times,' but its outlook is expected to improve next year as the global economic recovery picks up, Aluminum Corp. of China President Xiong Weiping said Thursday.

The short-term prognosis is in line with a deep decline in earnings among domestic producers amid sagging demand, rising raw-material costs and a policy by China's government to force the polluting industry to move its operations to less-populated areas in the country's western regions.

"The aluminum industry should recover [next year] but is going through a difficult period," Mr. Xiong told Dow Jones Newswires on the sidelines of the Communist Party Congress in Beijing, where the next generation of Chinese leaders will be chosen.

The company, also called Chinalco, is the parent of Aluminum Corp. of China Ltd. /quotes/zigman/294208/quotes/nls/ach ACH -2.99% , the country's largest alumina and aluminum producer by output. Mr. Xiong is also chairman of the listed unit, called Chalco.

Hit by sluggish global demand and falling prices, Chalco last week reported a net loss of 1.08 billion yuan ($173 million) for the three months ended Sept. 30, compared with a net profit of CNY555 million a year earlier. Revenue in the period fell 11% to CNY37.13 billion, it said.

"Chalco's existing operations are looking increasingly unsustainable, with negative returns and mounting debt, and its latest investments are also running into difficulties," Barclays Research said in a note.

London Metal Exchange three-month aluminum futures are down 19% from their peak this year. Domestic prices have fallen around 10% in the comparable period.

China's aluminum industry is beset by excess capacity, but local governments--tied to the revenues generated by aluminum smelters--continue to subsidize production.

Chalco's proposed deal to acquire Mongolia coal miner SouthGobi Resources Ltd. fell through in September, further weakening the company's efforts to diversify its products.

Chinese aluminum companies are also facing challenges in securing bauxite, a raw material for aluminum. Indonesia, China's top bauxite supplier, in mid-May introduced a 20% export tax on unrefined mineral types, including bauxite.

Indonesian exports accounted for 80% of China's bauxite consumption. Trying to guarantee its raw-material supply, Chalco has signed a deal with an Indonesian miner to develop a bauxite refinery in the Southeast Asian nation.

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