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Tickers in this Article: ACH, PTR, CEO, CHL, LFC, BIDU, STP, JPM, GS
It looks like the "China is going to grow forever" story has hit a pothole for the country's largest aluminum producer, Aluminum Corporation of China (NYSE:ACH). Also known as "Chalco", this company faced more than its fair share of issues in the first half of 2008, including bad weather, natural disasters, a difficult pricing environment and rising costs.

With that sort of a lead-in, it isn't surprising that results weren't terrific for the first half of 2008. Sales fell 7%, gross profit dropped nearly by half and operating profits were down 62%. Challenges were almost everywhere. Aluminum prices in China (measured by the Shanghai Futures Exchange) were slightly lower for the period, output exceeded demand by about 300,000 tons, transportation costs spiked because of railway bottlenecks, and input prices (alumina, coal, soda ash and heavy oil) all rose at double-digit rates.

That's an admittedly grim scenario, but there's reason to hope the second half could be better. Natural disasters and weather are anybody's guess, but the pricing and production outlook are not so random. According to estimates from JPMorgan (NYSE:JPM) and Goldman Sachs (NYSE:GS), the current price of aluminum in China is actually below the average production cost, which should lead to higher prices at some point - particularly since the government has long maintained it does not want goods produced at a loss.

Looking at the longer term, Chalco continues to invest in its own mine production, and that should be helpful in times of rising input prices. The company is also looking overseas for expansion opportunities (like Saudi Arabia) as a means of diversifying its production base.

Chalco is a tricky way to play the long-term secular growth story in China. While it currently trades below replacement value, and that argues that the downside should be more limited, it is in a business where boom and bust cycles go with the territory. Investors in other China-related commodity plays like PetroChina (NYSE:PTR) and CNOOC (NYSE:CEO) may relate to that point, as these shares have been quite volatile for similar reasons as Chalco.

That's not necessarily so for other China options like China Mobile (NYSE:CHL), China Life (NYSE:LFC), Baidu (Nasdaq:BIDU) or SunTech Power (NYSE:STP). And that's not to say these companies can't get overvalued, that their stocks can't be volatile or that they can't be part of speculative run-ups in their industry. Rather, I just make the point that there isn't quite the same inherent degree of volatility in those industries.

I find the current price for Chalco shares intriguing. However, since I often invest in biotech and small-cap med-tech, I might be accustomed to a little more volatility than the average investor. Investors looking for a solid commodity play on Chinese growth should certainly take a close look at these shares, but I'd caution them to first look at the stock-price chart and ask if they want a roller-coaster in their portfolio.

Find out how to adjust your portfolio when the market fluctuates to increase your potential return in Volatility's Impact On Market Returns.

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