Rio Tinto may offer 1.44bln to Chinalco’s overall 08’ profits

Rio Tinto could contribute an overall profit of 1.44 billion yuan to Chinalco this year, as the company maintains a good book profit over its ownership interests and exchange interests in Rio Tinto, sadi Chinalco’s deputy general manager Lv Youqing. Chinalco teamed with Alcoa in buying a 12 percent stake of Rio Tinto Britain in February this year, becoming the biggest single shareholder of Rio. Considering the risk of increasing power price, Citigroup raised its aluminum estimate for next year to $4,000 a ton. Aluminum industry is the most frail sector while facing global power crisis, as power accounts for around one third of the total cost in making aluminum. Citic Securities believe that Chinalco’s oversea benefits could help the company continue good profits among those of other state-owned companies. An executive for state-owned companies reported the companies’ results for the first half on July 22, saying they represented a 10.3 percent decline in profits. “due to the macroscopic environment, profit rate for first half will certain decrease”, said Mr. Lv. Chinalco’s listing company Chalco stated at the end of June that rising bauxite and fuel cost lift the company’s production cost, with first half profits this year dropped over 50% against those of the same period last year. Alumina production cost during the first 4 months rose 23% on a year-on-year basis, and electrolytic aluminum cost during the period rose 6% on year. National Development and Reform Commission (NDRC) announced that it would lift power price by 0.025 yuan/KWH, which imposed a worse pressure on Chalco’s production cost. Chalco stated at the time that it would entail a 300 yuan/ton increase of production cost due to the rise. Mr. Lv pointed out that companies should strengthen production management and reduce non-production expense, “the group will set an example with overall non-production expense cut at 5 percent ”. He also noted that the group should cut cost from procurement, energy-saving by staff, responsibility system for finance and adjustment of financing structure, besides, Chinalco will finish its 15-billion profit contract with State Asset Supervision and Administration Commission by the end of this year. “the first quarter of next year will be the most difficult time for entity economy according to the regular international acknowledgements”.