China Chalco's Shares Dive After Alcoa Sale


Shares in Aluminum Corp of China, dived more than 11% on Thursday after news that Alcoa, the world's top aluminum producer, sold its stake in the Chinese firm for US$2 billion.

Adding to the selling pressure, smelter sources told Reuters the firm --also known as Chalco -- planned to cut spot prices on alumina by about a tenth to 3,500 yuan (US$465.90) a ton from Thursday. Alumina is a raw material for aluminum production and is Chalco's main product.

Analysts say Alcoa's exit launched Chalco's shares on what they expect will be a short-term downtrend. The stock slid to an intraday low of HK$18.06 and
remained near there in late morning trade.

But its Shanghai-listed A shares -- closed to most foreign investors -- were down about 1.3% at 48.50 yuan.

Traders and analysts speculated about Alcoa's motives. The firm said it treated its purchase of a 7% to 8% stake six years ago as a financial investment but that the holding was no longer needed. 

Analysts said Alcoa might have exited Chalco on worries over an impending slide in aluminum prices, the firm's lofty valuations, or said the U.S. giant might have simply tired of a relationship that had borne few concrete initiatives.

"We believe this represents the end of a fruitless relationship," Daiwa Institute of Research's Geoffrey Cheng said. HSBC estimates that Chalco was trading at 22 times 2008 earnings as of Sept. 12, nearly twice Alcoa's 10.3 times.
On The Wane

Some say Alcoa's interest in Chalco had waned in the past few years and that the U.S. company appeared reluctant to share its technology with the Chinese company.

Both firms agreed in 2001 to set up an equal-stake joint venture to operate the Chinese company's wholly owned Pingguo plant in southern China's Guangxi region.

But there have been no signs of the venture being formed, a Pingguo executive who asked not to be identified has said.

"This news is a surprise to us. It shows a setback in terms of the strategic relationship between these two companies," JP Morgan's Feng Zhang wrote on Wednesday.

Longer term, investors had reason to be upbeat, given the firm's strong bottom-line performance, analysts say, a product of double-digit Chinese economic growth.

"We take into consideration Chalco's strong volume growth, domestic liquidity, and leading position in China's aluminum industry," JP Morgan added.