August 23, 2019 / 12:18 PM / a month ago

China Hongqiao slashes 2019 aluminum output guidance; first half profits surge

BEIJING (Reuters) - China Hongqiao Group (1378.HK), the world’s biggest aluminum producer, on Friday slashed its 2019 production guidance by up to 300,000 tonnes, or almost 5%, after recent flooding on its premises, as it posted a sharp rise in first-half profits.

Hongqiao, which initially denied any impact on its operations after Typhoon Lekima tore through the smelting heartland of Shandong earlier this month, admitted that “some of the group’s production workshops were damaged by the rain, which might bring adverse impact on ... production.”

“According to the preliminary assessment ... it was estimated that the group’s production volume of aluminum products for 2019 will decrease by 200 to 300 thousand tonnes as a result,” it said in a filing to the Hong Kong stock exchange, noting that further assessment was required.

Shanghai aluminum prices SAFcv1 struggled to move away from two-year lows in the first half of 2019 but hit a nearly 10-month high this week after a smelter shut down 500,000 tonnes of annual production in Xinjiang and investors worried about the impact of flooding in Shandong.

The floodwater has now receded, Hongqiao said on Friday. “Save for the aforesaid affected production capacity, the group’s business operation is in normal condition.”

Hongqiao had in April referred questions on production capacity to a note from brokerage Industrial Securities, which said the smelter’s 2019 output guidance was 6.3-6.35 million tonnes. A 300,000 tonne dent in production at the lower end of that range is equivalent to 4.8%, while a 200,000 tonne impact at the higher end is 3.1%.

Hongqiao’s production of aluminum alloy products in the first half of 2019 fell 10.3% from the previous year, “mainly due to the impact of the ... government’s policy of production restriction in heating season,” the statement added.

Analysts believe Hongqiao was exempt from environmental curbs on industrial output in the previous 2017/18 winter and was able to sustain full output throughout.

Hongqiao meanwhile said its net profit rose by 37.3% year-on-year to 2.48 billion yuan ($350.15 million) in the first half of 2019 despite lower aluminum prices, as it avoided a repeat of the 648.8 million yuan loss it made a year earlier on disposal of subsidiaries.

Operations otherwise remained stable during the period, it said, having clocked its best first-half profit since 2016.

The company, which only reports earnings on a semi-annual basis, said revenues decreased by around 6.5% to 41.43 billion yuan. Alumina revenues rose 14.9% to 6.16 billion yuan.

Reporting by Tom Daly; editing by Emelia Sithole-Matarise

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