Chalco May Surge on Metal Price Catch-up, Shenyin & Wanguo Says

Shares of Aluminum Corp. of China Ltd., the country¡¯s largest producer, may jump by more than 40 percent as the metal rallies to match gains in other commodities, said Shenyin & Wanguo Securities Co.

Chalco, as the Beijing-based company is known, may surge to HK$11.5 a share, or 2.5 times its price-to-book ratio, analyst Peggy Ye wrote in an e-mailed report. That¡¯s 45 percent higher than yesterday¡¯s closing price of HK$7.93 in Hong Kong.

Aluminum, used in buildings and car parts, is the worst performer on the London Metal Exchange this year, missing out on a rally that has seen copper surge 62 percent on optimism the worst of the global recession is over. Copper is about 3.2 times the price of aluminum, compared with a historical average of 1.8 times, Shenyin & Wanguo said.

¡°Aluminum price may rally in the short term as money flows into this relatively cheap metal,¡± Ye said by phone from Shanghai. ¡°By comparison, other metals and their equities have become very expensive.¡±

Lead has gained 66 percent and zinc 28 percent this year on the London Metal Exchange. Shenyin & Wanguo was voted the country¡¯s best brokerage for research last year by the national pension fund.

The price of aluminum has increased 13 percent this month in London. The gain ¡°was more an interplay of liquidity and valuation rather than a fundamental shift¡± in demand and supply, Ye said.

Shenyin & Wanguo remains ¡°cautious¡± about aluminum demand fundamentals, Ye said.

¡°Chinese aluminum producers would like to restart their spare capacity when the Chinese aluminum price is above 13,000 yuan ($1,902) a ton,¡± Ye wrote in the report. ¡°Another round of overcapacity would weigh on aluminum one or two months later.¡±

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