HEAVY METALS: A worker passes aluminum ingots at the Guangxi Branch of Aluminum Corp. of China Ltd. The company now faces harsh financial pressure (CFP)

Aluminum Corp. of China Ltd. (CHALCO), the country's largest alumina producer, shocked investors again by posting losses of 1.85 billion yuan ($301.3 million), according to the company's third-quarter financial report released on October 30. This is the second year CHALCO has suffered a loss.

Wang Yong, an analyst with CITIC Securities Co. Ltd., said overcapacity and low prices were CHALCO's biggest enemies. The company recorded losses of 8.23 billion yuan ($1.34 billion) in 2012.

After the global financial crisis, China's non-ferrous metals industry saw impressive growth plummet to rock bottom, with no sign of recovery over the past five years. While many companies in the industry had tried various ways to extricate themselves from the slump, few, if any, had succeeded.

Offloading assets

CHALCO had maintained stable growth since it was established in September 2001. But affected by the global financial crisis, it lost 4.65 billion yuan ($742.67 million) in 2009, and then earned negligible profits in 2010-11. But in 2012, the company again suffered huge losses.

To make up losses, CHALCO began selling its assets in the first half of 2013. The most important sale was with the Simandou open-pit iron ore. Located in Guinea, West Africa, the Simandou project is the biggest iron ore project in the world.

"The Simandou project involves big investment with a long construction period, creating funding pressure, so the company had to sell its interests to cut capital expenditure, and reduce interest expenses," reported CHALCO. Chalco Iron Ore—its investing entity for the Simandou project—recorded net losses of 12.5 million yuan ($2.04 million) in 2012.

Sale of assets in the first half of 2013 has significantly improved CHALCO's financial performance. According to its semiannual report, in the first half of 2013, it recorded losses of 670 million yuan ($109.12 million), much less than the 8.23 billion yuan ($1.34 billion) in the same period last year. However, its financial report for the third quarter shows that the losses have again ballooned. If the losses continue this year, the listed CHALCO will be given "special treatment" by the stock exchange.

If the Simandou deal can be concluded by year end, it can bring CHALCO 3.7 billion yuan ($602.61 million) in profits, enough to make up the entire year's losses.

However, the deal's pending success does not mean CHALCO can sit back. Cai Hongyu, a researcher with China International Capital Corp. (CICC), thinks CHALCO will continue to face much pressure because prices of aluminum products are set to remain low.

CHALCO is not alone in its financial dilemma, as the whole Chinese aluminum industry is suffering. There are 75 listed non-ferrous metal companies in the A-share market. According to their financial reports for the third quarter, two thirds of these are losing money.

Overcapacity

Figures from the National Development and Reform Commission showed that in the first three quarters of 2013, the non-ferrous metals industry earned total profits of 121.5 billion yuan ($19.79 billion), a year-on-year decline of 6.8 percent. In the third quarter, 20.7 percent of the country's non-ferrous metal companies were losing money, up by 0.4 percentage points over a year ago. They recorded total losses of 10.64 billion yuan ($1.73 billion), up by 3.9 percent compared with the same period last year.