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Chalco Triples in Shanghai Listing, Rivals Alcoa

Shares in Chinese alumina producer Aluminum Corp. of China (Chalco) nearly tripled in their Shanghai debut, valuing it on a par with world leader Alcoa.

The first-day gain also left Chalco's Shanghai-listed A shares at a 102% premium to its Hong Kong-listed H shares, underlining concern that a bubble might be building in Chinese stocks as investors keep pouring in new money.

Chalco's A shares opened at 20.07 yuan, well above analysts' expectations of a debut between 10 and 15 yuan, against their offer price of 6.60 yuan. They then pulled back slightly to end the day at 18.51 yuan.

That gave Chalco a market capitalization of 238 billion yuan (US$30.9 billion) -- just below the $31.3 billion market value of the world's largest aluminum producer, Alcoa.

Chalco surpassed the 194 billion yuan market value of steel maker Baoshan Iron & Steel -- the previous leader in China's metals sector -- to become the country's eighth-largest stock.

"Chalco's surge shows investors welcome the return of an industrial leader in the metals sector," said metal industry analyst Cai Luoyi at China International Futures.

China's domestic stock market has been dominated by a few sectors such as financials and airlines, leaving large sections of the economy almost unrepresented.

The Shanghai listing of Chalco, and other companies in sectors such as telecommunications which are expected to list later this year, could create a more healthy stock market while attracting fresh investor interest in the long term.

Indeed, some analysts said Chalco's stock price was justified. "With prices of Chinese metal stocks remaining relatively low compared to shares in red-hot sectors such as banks, Chalco's A-share price is actually not that high," said Cai. "Its price surge is likely to help push up other metals stocks in the medium term," he added.

Chalco, 8% owned by Alcoa, is the latest in a series of top Chinese companies to list on the domestic stock market over the past 10 months.

It listed through a share offer to buy out two units, smelter Lanzhou aluminum and alumina maker Shandong aluminum Industry, in a deal worth over $1 billion.

Chalco's A shares were valued at 19 times 2006 earnings per share -- higher than 15 times for Baoshan Iron & Steel, and 16 times for another top metals stock, Jiangxi Copper.

But it remained well below the giddy heights of the financial sector, where Industrial & Commercial Bank of China's A shares were valued at 32 times.

Chalco's Chairman Xiao Yaqing told Reuters on Monday that his company's share price was reasonable.

"The stock price is not too far from our expectations, and shows investors are becoming more and more mature," Xiao said. Asked about the A shares' premium, he said, "The H shares should move closer to the A shares."

Xiao said on Sunday that he was optimistic about his industry because Chinese demand for alumina, the raw material used to make aluminum, was growing rapidly.

He also said Chalco would continue expanding by receiving injections of production assets from its state parent, and through acquisitions.