Capacity Closures and Rising Overhead Hammer China Hongqiao’s 2017 Bottom Line

Capacity Closures and Rising Overhead Hammer China Hongqiao’s 2017 Bottom Line

The world’s premier raw aluminium producer China Hongqiao Group Limited released financial results for 2017 on Friday, revealing losses of 25.3 percent thanks to capacity closures and increased overhead costs.

According to the filing made with the Hong Kong Stock Exchange, revenue for the year totaled RMB93.3 billion, a 52-percent jump from last year’s total of RMB61.4 billion. Profits before taxation came to RMB7.1 billion, a fall-off from 2016’s total of RMB9.8 billion. Less taxes, profits for the year totaled RMB5.3 billion, also down from the year prior’s total of RMB6.8 billion.

On the whole, Hongqiao’s 2017 numbers represent a significant reversal from the year prior. The year after the firm leapfrogged Russian smelter U.C. Rusal as the world’s biggest raw aluminium producer, 2016 saw Hongqiao’s net profit explode, rising by over 80 percent.

According to Hongqiao’s chairman Zhang Shiping, 2017 was a difficult year for the firm due to a myriad of external forces.

“The increasing costs, constraints of resources and environment, intensified industrial restructuring, tightened relevant control policies and other profound impacts led to a rigorous environment both internally and externally for industrial upgrading, coordinated development and sustainability. The Group experienced tremendous challenges under such austere situation.”

Zhang continued by saying that his firm expects to continue streamlining operations via capacity closures, among other strategies.

“Looking forward, the Group will actively support the implementation of the national supply-side reform; further improve the current industrial model of ‘Integration of Aluminum and Electricity’ and ‘Integration of Upstream and Downstream Businesses’ to guarantee the supply of bauxite and alumina, explore the downstream application of aluminum and strategically expand marketing channels and establish an environment friendly entire industrial chain of aluminum products. In terms of production technology, more investment will be put in research and development, realizing energy-saving and improving the training of employee, maintain the Group’s core competitive edge.”

Hongqiao closed 2.68 million metric tons per annum of capacity last year, a large portion of which was axed on government orders. However, per industry experts, the firm was generally immune to the temporary winter cuts that saw a wide swath of capacity in the country’s northern regions shuttered from mid-November through last Thursday.