China Aluminum Smelters Finally Making Money

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Aluminium Corpn. Of China, (Chalco), the industry leader in China, has returned to profit in the third quarter for the first time in a year as the stimulus package and state assistance finally fed through into increased demand according to Bloomberg. The profit was pretty anemic, just $3m down 88% from last year’s $25m for the same quarter but the company sees China’s demand continuing and expects to post a small net profit for the year.

Even so high inventories and over capacity will limit the scope for further price rises and hence profit improvement in 2010. By Chalco’s own admission, the industry as a whole is in a state of overcapacity to the tune of 20-30% even though the firm is running at 86% of aluminum capacity and 90% of alumina capacity. Alcoa is quoted as saying they expect demand in China to rise by 4% next year, pretty muted compared to previous years but at least growth of sorts compared the west.

Prices in China have held up better than on world markets, falling only 20% from last year averaging over $2100 per metric ton in the third quarter compared to the LME at US$ 1836 per metric ton. Chalco is expecting prices to remain above $2100 per ton on the domestic market in the fourth quarter even though smelters and traders are estimated to hold over 600,000 metric tons of surplus output. Demand may reach 12.85m tons in 2010 but that will still be less than production and way below the country’s estimated 16-17m tons of capacity.

–Stuart Burns

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