Alumina Ltd recorded a 53 per cent increase in first-half profit but the aluminium maker’s stocks slumped after failing to meet broker’s estimates.
There are also concerns about long-term demand for alumina after China sharply dropped imports of the raw material by more than half this year.
Alumina is the raw material processed from bauxite rock and smelted to produce aluminium.
Alumina’s net profit rose to $US67.7 million ($A66.68 million) for the six months to June 30, from $US44.2 million a year earlier, the Melbourne-based firm said in a statement on Thursday.
Broker estimates were from $US85 million to $US105 million and the company’s shares reacted negatively, falling 5.79 per cent, or 11 cents, to close at $1.79.
However, chief executive John Bevan is bullish about the company’s prospects, pointing out steel is the only material to record faster growth in demand in the past decade.
He says global growth will be 12 per cent this year and will stay that way because of China and India’s growth.
After years of low profits, sales margins have also improved to $US76 a tonne from $US55 a year ago.
That is due to the phasing-in of index pricing to replace the alumina price being linked to the aluminium price, a five-year process the company is six months into.
“This industry should begin to be priced on its own fundamentals, thus providing the incentive needed to build or expand alumina refineries to meet the expected demand,” Mr Bevan said in a briefing.
“What we’re seeing is a significant ramp-up in smelting and demand inside of China, that’s reflected in the price of alumina going up inside of China.”
Alumina Ltd has a 40 per cent stake in US-based Alcoa World Alumina and Chemicals (AWAC), the world’s largest alumina business.
UBS Resources Research head Glyn Lawcock said he thought the market was disappointed with a net profit that was a “big miss”, a small dividend of three cents a share, fully franked, and rising unit costs.
Costs rose $US39 per tonne of alumina, due to a weak US dollar and increases in labour, fuel oil, coke and caustic.
He said the small dividend probably reflected the company having to service $US450 million in capital expenditure in the next six months and $145 in debt in the next 12 months.
Mr Lawcock said there was a risk the company was being overly optimistic about China’s demand level and warned demand outside China was only about six per cent.
“Do China need to import? The view is that they can’t secure enough bauxite,” he told AAP.
“But hey, six months ago people didn’t expect them to be not importing any alumina and they aren’t.”
On the positive side, gearing of 11.3 per cent was low and if investors were patient, Alumina may be selling at a $US110 operating margin – from its current $US76 – in five years once its index system was in place, he said.
