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Carol Chan

There is no question that Aluminum Corp of China (Chalco) will post a loss for the first half, but an improving operating environment since the end of the second quarter lends some optimism for next year.
Analysts think Chalco is likely to post a first-half loss of between 2.19 billion yuan (HK$2.48 billion) and 2.59 billion yuan.
Investment bank Macquarie Research said the surge in Chalco's share price last month reflected that investors increasingly believe Chalco could make a profit in the second quarter, but Macquarie said that might be too optimistic.
The mainland's biggest alumina and aluminium producer, which reported a first-quarter loss of 1.89 billion yuan, warned earlier that it might post a loss for the first six months of the year. 
Even the slight rebound in aluminium prices and the company's increased output from the first quarter is not likely to be able to stop its bleeding.
Macquarie estimated Chalco to report a 700 million yuan loss in the second quarter, while OSK Securities expected a loss of 295 million yuan.
Both Macquarie and OSK said they believed that the Beijing-based firm could return to profit in the second half, but it was unlikely to offset the huge losses it might make in the first half. 
Macquarie forecast that Chalco would post a loss of 1.28 billion yuan for the full year, while OSK estimated a loss of 300 million yuan. But they both believe Chalco will report full-year profit next year.
Some are more optimistic. Citigroup expects Chalco to report a profit of 243 million yuan this year and increase that to 2.2 billion yuan next year.
'Demand for aluminium is stronger than expected this summer and moving into autumn we expect demand to accelerate,' Citigroup said. 
It upgraded Chalco to buy from sell earlier this month after the producer raised the spot price of alumina for the third time this year. It said Chalco's alumina would benefit faster than other base metals because of  its favourable demand structure - 50 per cent comes from construction and vehicles.
Alumina is the raw material for producing aluminium. Citigroup said smelters accepting higher alumina costs implied improved profitability and a positive outlook on demand.
Shanghai aluminium futures for September delivery have risen about 28 per cent this year, closing at 14,990 yuan per tonne on August 20. This comes amid an investment boom and increasing manufacturing activity on the mainland.  
The mainland's gross domestic product  grew 7.9 per cent year on year in the second quarter and 7.1 per cent in the first half. The   purchasing managers' index rose to a seasonally adjusted 53.3 in July from 53.2 in June, indicating manufacturing activity was expanding. 
Economists have revised up their GDP forecasts well above Beijing's full-year growth target of 8 per cent.
Goldman Sachs earlier this month raised  its GDP growth target to 9.4 per cent this year and 11.9 per cent next year.  
Helen Lau, an analyst at OSK, said domestic investment expansion and increasing manufacturing activity should continue to drive the country's economic recovery. And aluminium, a key industrial metal used in the construction, power and transport sectors, would benefit from economic growth, she said. 
Citigroup expects China's aluminium consumption next year will grow 16.3 per cent to 13.6 million tonnes after a contraction of 5.4 per cent this year. 
However, overcapacity will continue to be an overhang. Smelters are already restarting their idled capacity amid rising aluminium prices which will increase supply and weigh on price recovery.
About 3.4 million tonnes of aluminium smelting capacity, among  13.1 million tonnes of capacity, were closed late last year and early this year after prices plunged below production costs.
However, with the rise in  prices in the past few months, about 1.5 million to 2 million tonnes of smelting capacity have restarted in recent weeks, according to Citigroup.



Loss expected at Chalco but operations seen improving