Market conditions hit smelters

Shenzhen-listed Yunnan Aluminium Co, one of China's leading aluminum smelters, is expecting to record first quarter losses totaling between 70 million yuan ($11.31 million) and 75 million yuan, nearly three times the 24.28 billion yuan deficit it wrote down during the same period last year, the company warned in an exchange filing Monday.

The company's forecasted slump is largely in line with faltering performances seen across the aluminum industry in China, the world's largest producer and consumer of the nonferrous metal, as bearish conditions continue to cloud the market, experts told the Global Times Monday.

With a growing number of aluminum smelters disclosing annual results, many of the industry's bigger players are showing greater pessimism about their prospects for the near- to mid-term.

According to a report Friday by the China Business News, the country's six leading aluminum producers all expressed concerns about what the market held in store for them over the coming year.

These doubts come after Chinese aluminum smelters saw their profits for 2012 drop by 92.7 percent from the previous year, giving them the domestic nonferrous metal sector's steepest yearly decline, industry data show.

Aluminum Corp of China Ltd, the country's top aluminum maker, posted a net loss of 8.23 billion yuan last year, reversing from a profit of 238 million yuan in 2011 and giving the company its worst annual financial performance ever, the company announced in a filing to the Shanghai Stock Exchange in March.

After several of the world's largest producers of bauxite, a critical ore in the production of aluminum, recently pushed up their export duties on the commodity, Chinese smelters have seen their expenses go up sharply as a result, Li Ning, a nonferrous metal analyst with Shanghai Cifco Futures, told the Global Times.

"Domestic smelters are heavily reliant on imported bauxite from countries like India due to concerns about the poor quality of the bauxite here at home," Li explained.

Meanwhile, Zhang Fang, an analyst from China Futures Co, also pointed to softening downstream demand for aluminum as another major factor behind the financial straits squeezing local smelters.

"Signs of economic slowdown persist in China, so big buyers like automakers and property developers, have cut their orders for the material," Zhang said.

But even as sales diminish, domestic aluminum smelters have not scaled back output, swelling inventories nationwide and bogging down prices in the process, Zhang further explained.

Stocks of electrolytic aluminum, a major category of aluminum, at spot commodity market warehouses in Shanghai, Wuxi, Hangzhou and Foshan totaled 1.32 million tons as of April 11, a record high, according to figures from metalchina.com, an industry portal.

Retail aluminum prices in China had fallen by an average of over 5 percent through the year-to-date, according to figures offered by Zhang.