Confusion of Chinalco¡¯s Diversification

On the condition of long-term surplus in the domestic aluminum market, the transformation of Chinalco is naturally reasonable. But faced with industry competition and its own inherent weaknesses, whether expanding business to other industry can help Chinalco to be out of trouble is still unknown.

On October 28, Chinalco (601600) announced that it would pay about 537 million to be involved in the establishment of Shanxi Jiexiu Xinyugou Coal Industry (Group) Co., Ltd., and taken about 34% shares. At this point, Chinalco formly entered the coal field, and while a few months ago it had announced to develop into the coal industry.

This is just one step for Chinalco’s diversification in recent months. Early Chinalco has announced highly that they will develop the iron ore business together with Rio Tinto Group. Chinalco has changed their business from a pure aluminum into aluminum, copper, rare earth, engineering, trade, resources, and oversea theses seven blocks.

However, whether diversification can improve the aluminium business of Chinalco is still need to carefully look at. No matter coal or earth, major central enterprises and local state-owned assets and private enterprises are eyeing. Facing the local state-owned and private enterprises, although Chinalco has strong resource and energy, the competition of metal mineral resources is increasingly fierce on the condition of resources shortage and inflation expectations.

For Chinalco itself, for the weakness of management overstaffed and low production efficiency, they do nothing. As the central enterprises, Chinalco is not possible to optimize the management fully. This, for some extent, has restricted the development of Chinalco.

Diversification itself is not wrong, but facing the internal and external problems, the diversification road of Chinalco has lots of uncertainty factors.

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