A number of new reports coming out of China and other industry and economic factors point to the Aluminum Corporation of China Limited (CHALCO) entering into a new growth phase, which has me looking at the ADR from a fairly bullish stance.
Chalco (NYSE:ACH), which is by far the largest domestic producer of finished aluminum, holds a national monopoly on alumina. It runs a national network of 34 subsidiary operations and has a 26.6% stake in Yunnan Copper, the second largest copper producer in China.
Abroad, Chalco has been very active on the acquisition front. In 2007 it acquired development rights in the Aurukun project in Australia, which will be coming online in 2011, and which is slated to provide 6.4 mtpa of bauxite and 2.1 mtpa of refined alumina. 2008 saw it acquiring the Peru Copper Company for a snip at $860 million and along with it the development rights for Toromocho, which is estimated to hold more than 15 billion tonnes of high grade ore.
Not all has been complete plain sailing, however, as the company bought into 12% of Australia's Rio Tinto (RTP) last year in partnership with Alcoa (AA). But it failed this year to acquire a further 18% for a chunky $20Bn, after a shareholder revolt and Australian fears that Chinese companies were getting their hands on mineral assets at knock-down prices.
To cap off the supply side, as we reported yesterday, it looks as though China has managed to secure access to vast bauxite resources in Guinea, the majority of which will go to supply Chalco refining and smelting operations.
Looking at the Chinese economy as a whole and at one or two of the sectors in more detail, I can see a building demand for aluminum starting in the short term.
China National News has reported trade figures for September that show a marked slowdown in exports, down only by 15.2% from September 2008. Considering that, overall, Chinese exports have been on a decrease of around 31% for the year, this is a strong signal that Chinese manufacturing is back on the rise.
Figures released by the China Association of Automobile Manufacturers today show that the auto sector is still enjoying sustained growth, with more than 1.3 million units being sold in September, a 78% increase on a year ago. So far 9.66 million units have been sold in China in 2009, a jump of 34% on the same period in 2008. With this continued growth in the sector, aluminum demand will also continue to grow in line.
In aviation, China has made some great advances in the last 10 years, moving from maintenance and repair, to engine manufacture and now construction of airliners. We have seen Airbus center its Asian operations for A320 assembly in Tianjin, alongside Eurocopter, whilst Beijing is investing over 10 billion yuan in an "aviation city" that will support aircraft manufacturers.
Domestic usage of commercial aircraft has seen astonishing growth this year, with a 43% rise in passenger air traffic being registered. Now China is looking to build its own flagship airline brand to take on incumbents Boeing (BA) and Airbus. State-owned Aviation Industry Corp. of China (Avic), which is producing the ARJ21, recently predicted the country will need 3,796 new passenger planes by 2028 to keep up with domestic demand for air travel, adding to its present fleet of 1,191.
Need I say more?
Disclosure: Authour holds a long position in ACH