Guangdong Kinen Sanitary Ware Industrial Co.,Ltd. , https://www.kinengroup.com
On April 30, Chinalco announced its 2013 annual loss, marking a challenging year for the company. The financial data revealed that both total profits and net profits suffered significant losses. Specifically, the total profit loss reached 6.549 billion yuan, a 32.2% improvement compared to the previous year, while the net profit loss amounted to 7.786 billion yuan, a 21% decline from the prior year. This loss represented approximately 10% of the company’s audited net assets in 2013.
The downturn was attributed not only to falling prices of major products due to market conditions but also to several asset transactions involving Chinalco and its listed subsidiary, Aluminum Corporation of China. These transactions were aimed at protecting the listed companies from being delisted (ST status), yet they placed a heavy burden on the aluminum sector. With no substantial improvement in the market environment, the losses had to be absorbed again.
Chinalco explained the massive 7.8 billion yuan loss as primarily due to overcapacity in electrolytic aluminum production, combined with declining sales prices for key products like aluminum and copper. The average annual sales price of electrolytic aluminum dropped by 1,096 yuan per ton (including tax) compared to 2012, while the price of electrolytic copper fell by 4,436 yuan per ton. These factors significantly impacted profitability.
Market conditions were just one part of the story. In 2012, Chinalco had already reported an 8.2 billion yuan loss, and another year of losses could have led to ST status, which would have brought severe consequences, including shareholder dissatisfaction, bank scrutiny, and higher bond issuance costs. To avoid this, Chinalco took drastic measures.
The company’s majority shareholder, China Aluminum, implemented several strategies to cover the losses. For instance, it sold off certain assets, such as Guizhou Branch's oxidation facilities, and transferred parts of its subsidiaries to the parent company. These actions helped Chinalco avoid ST and even achieve a net profit of over 9 billion yuan in 2013.
According to Chinalco’s internal calculations, about two-thirds of the profit came from capital operations. As one executive put it, “Trading with major shareholders is like half the income, and the other half is your own.†The company also emphasized that asset disposals were not just about cutting costs but also about strategic reallocation.
However, these measures came with their own challenges. While some areas improved, others—like the newly acquired assets—continued to struggle. The transition was costly, and the overall performance remained fragile.
Facing a difficult market environment, Chinalco implemented cost-cutting and efficiency measures to control losses and boost profits. Although the company managed to reduce losses by more than 20%, the amount remained significant. Despite the loss, the company claimed it had not yet affected its ability to operate or service debt.
To address the situation, Chinalco has been transitioning from a single-aluminum-focused business to a diversified mining company. It now operates three main businesses: aluminum, copper, and rare earths, along with related sectors such as engineering, trade, and resource exploration. This shift aims to reduce reliance on any single product and improve resilience against market fluctuations.
Despite these efforts, the industry still faces challenges, including overcapacity and rising energy costs. In 2013, electrolytic aluminum utilization rates dropped to around 68.56%, with excess capacity exceeding 30%. This trend continues into 2014, adding to the pressure on companies like Chinalco.
Aluminum prices have fallen to historic lows, and rising operational costs have pushed many domestic producers into deep losses. Even with production cuts, the impact has been limited. In the first quarter of 2014, Chinalco reported a net loss of 2.157 billion yuan, up by 1.181 billion yuan compared to the same period in 2013.
Executives have described these measures as necessary but painful steps to survive in a tough market. Looking ahead, Chinalco aims to make 2014 a critical year for restructuring and achieving sustainable growth. The goal is to eliminate losses caused by industry cycles and build a competitive cost structure.
Currently, while the aluminum segment remains a challenge, other divisions are profitable. Controlling losses and increasing profits will remain central to Chinalco’s strategy in 2014. The company has outlined three key breakthroughs: accelerating structural adjustments, benchmarking industry best practices, and deepening reforms to enhance vitality.
Specifically, Chinalco plans to reduce outdated alumina production, optimize existing capacity, and invest in captive power plants and direct power purchasing. In terms of business expansion, it will focus on competitive projects, explore joint ventures, and move some production to energy-rich regions abroad.