Shares of Aluminum Corp of China (HK:2600), commonly referred to as Chalco, climbed sharply on Thursday after the company issued a positive profit outlook for the first quarter. The producer projected net profit attributable of between 5.30 billion and 5.59 billion yuan for the three months ended March 31, equivalent to roughly $730 million to $820 million, a year-on-year increase of about 50% to 58%.
Chalco stock gained around 3% in Hong Kong and Mainland trade, moving ahead of declines in the Hang Seng and the Shanghai Shenzhen CSI 300 indexes during the same session. The company said its profit forecast slightly exceeded a Morgan Stanley estimate of 5.27 billion yuan.
Management attributed the stronger-than-expected result mainly to higher aluminum prices in the first quarter. The company cited a range of supply-side pressures that tightened the market, including Chinese production curbs and U.S. import tariffs that disrupted global supplies.
More recently, Chalco noted that the onset of the U.S.-Israel war on Iran had further supported aluminum prices by disrupting shipping through the Middle East and contributing to the shutdowns or strikes at several production facilities in the region. That tightening of available supply, the company said, helped offset concerns about potentially softer demand in coming quarters.
Operationally, Chalco said it also benefited from greater self-sufficiency in its bauxite supplies during the quarter, which aided in cost management. The company is identified as the worlds largest aluminum producer.
Summary
Chalco is forecasting a substantial year-on-year rise in first-quarter net profit, driven primarily by firmer aluminum prices and improved control over bauxite sourcing. The guidance beat a key analyst estimate and coincided with a roughly 3% uptick in the companys shares amid broader market weakness.
Key points
- Chalco forecasts Q1 net profit attributable of 5.30-5.59 billion yuan, up 50%-58% from a year earlier.
- Stronger aluminum prices in Q1, stemming from supply disruptions including Chinese production curbs and U.S. import tariffs, were the primary driver of the improved outlook.
- Geopolitical disruptions in the Middle East and increased bauxite self-sufficiency helped tighten supplies and support margins; sectors affected include metals & mining, industrials, and commodity shipping.
Risks and uncertainties
- Potential for softer demand in coming quarters, a concern that market participants remain mindful of despite current supply-driven price strength.
- Continued geopolitical disruptions - cited in the report as affecting shipping and regional production - could create volatility in aluminum availability and pricing, with implications for supply chains and shipping sectors.
- Supply-side policy measures and tariffs, which previously disrupted global supplies, remain a factor that could influence future price and production dynamics in the metals sector.