Chalco – Aluminum Corp. of China, expects volatility in aluminum prices to remain for the rest of the year given continuing capacity overhang, as well as market doubts over global economic recovery, China’s real estate sector policy changes, and USD strength. Company says that by end of June, alumina operation rates were 92.8%, galvanized aluminum operation rates were 94.5%. Alumina output in 1H up 54.1% on year to 4.93 million tons, aluminum output up 20% to 1.93 million tons. Chalco also says it will continue to push for partnerships with power plants to materialize direct-electricity program.

Goldman Sachs says 2Q results disappointing with net loss of RMB 7 million vs 1Q earnings of RMB 627 million, while 1H earnings only achieved 10% of house’s FY10 net profit estimate. Since preferential electricity tariff has been cancelled in May, with electricity cost accounting for roughly 35% of smelting cost, Goldman Sachs expects Chalco to remain under margin pressure, unless there is strong recovery in demand. “We continue to hold our negative view on Chalco stock, given its high electricity cost, historical high inventory level, as well as sluggish demand for aluminum under a tightening macro policy.”  The house keeps Sell rating with HK$6.50 (ADR $20.9) target.

Morgan Stanley also revises down Chalco’s rating to Underweight with target price at HK$5.00 (ADR $16.08). “With our higher unit cost assumption based on the poor 2Q results, we expect another loss in 3Q, but a bounce back to a small profit in 4Q due to our higher (aluminum) price forecast of US$0.94/lb.” The house expects breakeven for FY10, and cuts FY11-FY12 EPS forecasts by 30%-50%.

Citigroup keeps Chalco’s rating at Sell with target price at HK$4.00 (ADR $12.86).

Chalco H-share was down 4.43%, closed at HK$6.26 (ADR $20.13) overnight Tuesday vs ADR’s $20.37 on Wall Street Monday.