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September 2, 2009

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Price hikes should help Chalco's bottom line

ALUMINUM Corp of China Ltd, also known as Chalco, said it raised its spot alumina prices by 6.3 percent to 2,550 yuan (US$373) per ton from yesterday, its second increase in just a month.

The price hike reflects increased demand of aluminum in sectors such as property and follows higher imports of alumina. Alumina is used to make aluminum.

Chalco, the world's third-largest alumina producer, said last week it was operating at 67 percent of its alumina capacity until June, resulting in the alumina division losing about 2 billion yuan in the first half.

"The alumina price hike could potentially turn around the loss-making division as its operating rate could improve further," Goldman Sachs analyst Shen Song wrote in a report, adding the current operating rate has increased to 80 percent.

Shen said aluminum could be a major beneficiary of the potential improvement in the property sector, and better fundamentals would further increase the alumina utilization rate and alumina prices.

Zhao Lu, an analyst at the Beijing-based Distribution Productivity Promotion Center of China Commerce, said Chalco's price increase is meant to cement confidence in the alumina sector.

"Many small alumina refineries have suffered losses in the first half. As the domestic leader, Chalco's move could help ensure some profit in the sector and stabilize the market," she said.

Chalco rose as much as 4 percent in Hong Kong before closing 1.58 percent up at HK$8.35 (US$1.08), but it fell 3.69 percent to 12.27 yuan in Shanghai trading.


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