Jiangxi Copper Sets up Risk Control Unit

Top China copper producer Jiangxi Copper said on Thursday it has set up an emergency unit to deal with volatile markets and will tighten controls over futures positions, days after posting an investment loss that spooked investors.

The parent of Jiangxi Copper Co Ltd will also beef up supervision of its exposure to financial derivatives, the statement on its website said.

Foreign exchange and derivatives losses reported by several Chinese companies in recent days, including steel-to-property conglomerate CITIC Pacific, have further depressed already battered investor confidence and heightened concerns over companies' exposure to volatile financial markets.

Despite Jiangxi's statement that it would tighten internal controls, its Hong Kong-listed shares fell 8 percent to a two-year closing low of HK$3.83 on Thursday on concern over its bleak earnings outlook, weakening copper prices and investment losses.

But some market watchers said the damage could have been worse.

Jiangxi Copper on Tuesday reported a 27 percent drop in third-quarter net profit to 919.5 million yuan, which included investment losses of 172 million yuan. It made an investment income of 62.8 million yuan for the same period last year. 

In the first nine months of this year, it booked 82.3 million yuan in investment profit versus 127.5 million yuan a year earlier.

Traders also unloaded Jiangxi Copper corporate bonds on concern over its exposure to volatile markets.

Castor Pang, strategist with Sun Hung Kai Financial in Hong Kong, said investors had lost confidence and any news regarding trading losses could trigger selling.

DBS on Thursday downgraded Jiangxi Copper to fully valued from hold after its third-quarter results lagged forecasts.

Goldman Sachs cut its price target for the company's Hong Kong-listed shares by half on Wednesday to HK$3.30. It also slashed 2008-09 earnings forecasts by 17 percent and 31 perecnt, respectively, to reflect expected lower copper and sulphur prices.

A third of the world's copper smelters could slip into the red in 2009 as they struggle with low processing fees to turn ore into metal, falling metal prices and a slump in credits for by-products such as sulphuric acid, Paul Robinson, Group Manager, non-ferrous metals at London-based CRU said.

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