March 20, 2020 / 12:24 PM / 12 days ago

China Hongqiao sees 2019 aluminum output fall sharply, eyes move into scrap

BEIJING (Reuters) - China Hongqiao Group, the world’s biggest aluminum producer, said on Friday lower costs boosted net profit by 12.7% in 2019 despite a sharp drop in output, as it announced its intention to boost production from scrap metal.

Net profit came in at 6.095 billion yuan ($862 million) last year, versus 5.407 billion yuan in 2018, the company said in a Hong Kong stock exchange filing, warning the coronavirus will have a “profound impact” on global supply chains.

The rise in profit came even as Hongqiao saw an 11.3% fall in production of aluminum alloy products to 5.644 million tonnes, and a 6.7% drop in revenue to 84.18 billion yuan last year as Shanghai aluminum prices averaged 2.4% lower.

The company attributed the higher profit to lower purchase prices for raw materials such as coal, higher efficiency and greater sales of fabricated aluminum products.

It said lower primary aluminum production was due to China’s winter restrictions on industrial output in 2019, as well as its switch to more advanced facilities and an outage caused by flooding near its Shandong headquarters in August.

Hongqiao had said at the time its annual production would fall by 200,000-300,000 tonnes as a result of that incident.

The company is moving around 2 million tonnes of annual aluminum production from Shandong to Southwest China’s Yunnan province to take advantage of cleaner hydropower, but doing so will not increase its licensed capacity of 6.5 million tonnes per year of primary aluminum.

However, Hongqiao said it would “dedicate itself to increasing the primary aluminum production capacity through secondary aluminum,” or scrap aluminum, and “plans to add new production lines for secondary aluminum,” without elaborating.

The company currently makes its aluminum using alumina, a substance refined from bauxite ore, but recycling scrap aluminum - such as used cans - could help it save costs, especially with Shanghai aluminum prices falling to their lowest since 2016 this week.

“It is expected that the aluminum industry will face greater challenges and opportunities” in 2020 due to the epidemic, Hongqiao added.

Alumina sales rose 29% in 2019 to 5.28 million tonnes after the company “seized market opportunities” to sell more material domestically when its own usage decreased, Hongqiao said, adding that the 1 million tonnes per year second phase of its alumina project in Indonesia is expected to start up the end of 2020.

Reporting by Tom Daly;Editing by Elaine Hardcastle

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