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Chalco Shares Slip After Weak Third-Quarter Results

Aluminum Corp of China, the world's No. 3 alumina producer, posted weaker than expected earnings due to lower product prices and higher costs, sending its shares down as much as 2 percent.

Some analysts said they might reduce 2007 earnings forecasts for the firm known as Chalco, but would wait to see what company executives had to say at a briefing later today.

By the midsession break, Chalco's Hong Kong-traded shares had recovered slightly to trade at HK$12.75, down 0.87 percent on the day, lagging a 0.6 percent rise by the index of Hong Kong-listed Chinese companies

Chalco, now the world's most valuable alumina and aluminum maker with a market value of US$67.9 billion, double that of global rivals Alcan or Alcoa, reported a July-September net profit of 2.04 billion yuan (US$273 million), or 0.16 yuan per share, based on Chinese accounting standards.

The company, which earned 0.53 yuan per share in the first half of 2007, did not provide a year-on-year comparison.

Analysts said they would not have expected any significant discrepancy if the results had been provided under international accounting standards. We see Chinese aluminum production growth peaking in 2007, which might lead to improving fundamentals in 2008," JP Morgan said in a research note. "The weaker-than-expected results put our (forecast) and consensus 2007
full-year estimates at risk."

JP Morgan expected Chalco to make a net profit of 0.94 yuan per share in 2007. A survey of 19 analysts showed an average estimate of 0.96 yuan per share.

Chalco's net profit for the first nine months of 2007 was 8.44 billion yuan, representing 65 percent of Goldman Sachs' full-year estimate, the investment bank said.

"We believe the weak earnings could largely be driven by weak aluminum and alumina prices, still large spot alumina exposure, and a higher effective tax rate," Goldman said in a research note late on Monday.

Volatility

Last month, Chalco cut its spot price for alumina, the main material for the production of aluminum, by about 10 percent to 3,500 yuan a ton.

Goldman put the firm's earnings and share price target under review pending more details from a post-results conference call later on Tuesday.

Chalco has focused on upstream and downstream integration to protect it from increased volatility in metals markets.

It plans to lift alumina internal consumption to more than 70 percent by 2010 from about 50 percent at present and lift its bauxite self-supply ratio to 100 percent by 2010 from the current 60 percent, according to DBS.

The integration strategy should bode well to sustain its long-term growth momentum and provide cost synergies as well, DBS Group Research said in a recent research report.

Chalco is forecast to post net profit of 12.16 billion yuan ($1.63 billion) in 2007, up 9.6 percent from last year, according 19 analysts polled by Reuters Estimates.

Its shares rose nearly 70 percent in the third quarter, beating a 42 percent gain on the index for Chinese companies listed in Hong Kong in the same period.