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Chalco Not Recovered Yet
Aluminum Corp of China Limited (NYSE:ACH), known as Chalco, reported a steep loss for its fourth quarter. This was an earnings surprise to the tune of $363 million as the company was expected to turn a quarterly profit of 1.34 billion yuan. The Chinese metals giant also reported a loss for 2009 of $679.7 million, after a slightly profitable 2008. Fallen demand, fallen aluminum prices and increased costs caused the company's losses.
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Aluminum's Hard Year
Although the Chalco loss was a surprise, it shows the depth of the down cycle for aluminum as well as Chalco's slow recovery. Others in the sector have been battered, including Alcoa (NYSE:AA), though it is on tap for a profitable quarter when it kicks off the second-quarter reporting season April 12.
Alcoa is expected to rebound this year with a fully profitable year. Russian aluminum titan UC Rusal is also showing signs of recovery in the industry, as it has scheduled a fifth of its idled capacity to restart by first quarter's end. The metal itself in the last year traded as high as $1.05 a pound on the London Metal Exchange, after slumping to 60 cents last year and now trades just below its yearly high. Demand from investors, however, has not picked up.
Chalco And Rio Tinto
Chalco was locked into a bizarre conflict with Rio Tinto (NYSE:RTP), when Chalco's bid for a larger stake in Rio Tinto was rebuffed. Bad feelings escalated to the point where four Rio Tinto employees were prosecuted in China. Some observers feel this was China's ugly response to Rio Tinto's rejection of the Chalco bid.
Nevertheless, Chalco and Rio Tinto appear to be moving ahead on the business front, as the two companies announced a joint venture in the Simandou, Guinea, iron ore project. Chalco will buy 44.65% of the project for $1.35 billion. With Rio Tinto, Vale (NYSE:VALE) and BHP Billiton (NYSE:BHP) controlling the seaborne market for iron ore, this should be a positive move not only for Chalco but for China's steel market overall. Add this to the slowly rebounding aluminum market, and Chalco's business should be looking up as this year goes along.
Currency War
Another factor which may play into Chalco's prospects is if there is any substantial movement byChina China
Chalco In 2010
Investors should keep a careful watch on the aluminum supply, demand and price. Because Chalco is a Chinese company, a watchful eye on the Chinese economy is also paramount. The visibility of Chinese companies regarding their financials and performance isn't always totally clear, so extra vigilance may be necessary.
That said, the long-term demand of base metals and the demand for aluminum should continue to be significant. China drives this on a secular basis, now, as its huge industrial demand should for commodities in the foreseeable future.
The Bottom Line
While Alcoa and the other aluminum producers are better investments now, watch for Chalco's pickup in revenues and earnings quarter by quarter. Chalco isn't a great stock buy now, but it could be in the future. (All that glitters isn't gold. Find out how to get started on your treasure hunt. For further reading, refer to A Beginner's Guide To Precious Metals.)
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IN PICTURES: Top 10 Forex Trading Rules
Aluminum's Hard Year
Although the Chalco loss was a surprise, it shows the depth of the down cycle for aluminum as well as Chalco's slow recovery. Others in the sector have been battered, including Alcoa (NYSE:AA), though it is on tap for a profitable quarter when it kicks off the second-quarter reporting season April 12.
Alcoa is expected to rebound this year with a fully profitable year. Russian aluminum titan UC Rusal is also showing signs of recovery in the industry, as it has scheduled a fifth of its idled capacity to restart by first quarter's end. The metal itself in the last year traded as high as $1.05 a pound on the London Metal Exchange, after slumping to 60 cents last year and now trades just below its yearly high. Demand from investors, however, has not picked up.
Chalco And Rio Tinto
Chalco was locked into a bizarre conflict with Rio Tinto (NYSE:RTP), when Chalco's bid for a larger stake in Rio Tinto was rebuffed. Bad feelings escalated to the point where four Rio Tinto employees were prosecuted in China. Some observers feel this was China's ugly response to Rio Tinto's rejection of the Chalco bid.
Currency War
Another factor which may play into Chalco's prospects is if there is any substantial movement by
Chalco In 2010
Investors should keep a careful watch on the aluminum supply, demand and price. Because Chalco is a Chinese company, a watchful eye on the Chinese economy is also paramount. The visibility of Chinese companies regarding their financials and performance isn't always totally clear, so extra vigilance may be necessary.
That said, the long-term demand of base metals and the demand for aluminum should continue to be significant. China drives this on a secular basis, now, as its huge industrial demand should for commodities in the foreseeable future.
The Bottom Line
While Alcoa and the other aluminum producers are better investments now, watch for Chalco's pickup in revenues and earnings quarter by quarter. Chalco isn't a great stock buy now, but it could be in the future. (All that glitters isn't gold. Find out how to get started on your treasure hunt. For further reading, refer to A Beginner's Guide To Precious Metals.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Greg Sushinsky
Greg Sushinsky is a passionate independent investor, who has done his own research, analysis and investing for 20 years. One of his earliest investing memories was when he first saved and bought U.S. Savings Bonds with his own money as a small child. From there, he studied investing on his own and made small stock purchases as he grew as an investor.
Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.
Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.
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