Chalco May Surge on Metal Price Catch-up, Shenyin & Wanguo Says

By Bloomberg News

June 18 (Bloomberg) -- Shares of Aluminum Corp. of China Ltd., the country’s largest producer, may jump by more than 40 percent as the metal rallies to match gains in other commodities, said Shenyin & Wanguo Securities Co.

Chalco, as the Beijing-based company is known, may surge to HK$11.5 a share, or 2.5 times its price-to-book ratio, analyst Peggy Ye wrote in an e-mailed report. That’s 45 percent higher than yesterday’s closing price of HK$7.93 in Hong Kong.

Aluminum, used in buildings and car parts, is the worst performer on the London Metal Exchange this year, missing out on a rally that has seen copper surge 62 percent on optimism the worst of the global recession is over. Copper is about 3.2 times the price of aluminum, compared with a historical average of 1.8 times, Shenyin & Wanguo said.

“Aluminum price may rally in the short term as money flows into this relatively cheap metal,” Ye said by phone from Shanghai. “By comparison, other metals and their equities have become very expensive.”

Lead has gained 66 percent and zinc 28 percent this year on the London Metal Exchange. Shenyin & Wanguo was voted the country’s best brokerage for research last year by the national pension fund.

The price of aluminum has increased 13 percent this month in London. The gain “was more an interplay of liquidity and valuation rather than a fundamental shift” in demand and supply, Ye said.

Shenyin & Wanguo remains “cautious” about aluminum demand fundamentals, Ye said.

“Chinese aluminum producers would like to restart their spare capacity when the Chinese aluminum price is above 13,000 yuan ($1,902) a ton,” Ye wrote in the report. “Another round of overcapacity would weigh on aluminum one or two months later.”

Chalco dropped 2.5 percent to HK$7.73 at 11:38 a.m. in Hong Kong trading.

--Li Xiaowei. Editors: Tan Hwee Ann, Indranil Ghosh.

To contact the Bloomberg News staff on this story: Li Xiaowei in Shanghai at Xli12@bloomberg.net