20 April 2019

Chalco reels from bloated workforce

Aluminum Corp. of China Ltd. (Chalco) (02600.HK, 601600.CN) is heading towards a second straight year of loss unless it manages a surprise turnaround in the fourth quarter. The country’s largest nonferrous metals enterprise recorded a net deficit of 1.85 billion yuan (US$304 million) in the first nine months of 2013.

Chalco has often cited weak aluminum price, global economic slowdown and sluggish demand to justify its poor performance. These external factors do exist but they don’t tell the entire story. Perhaps the state-owned company should be brave enough to take a huge part of the blame.

While Chalco was struggling to make ends over the past two years, its privately run rivals were actually faring quite well. China Hongqiao Group (01378.HK) earned 5.45 billion yuan in 2012 and 2.81 billion yuan in the first half of 2013, despite the fact that its turnover is just roughly one sixth of Chalco’s.

Shandong Nanshan Aluminum Co. Ltd. (600219.CN) recorded a profit of 496 million yuan in the first three quarters this year while the non-listed Shandong Xinfa Aluminum & Electricity Group saw its net margin hit as much as 15 percent, Beijing News reported.

Owing to their more flexible approach and greater production efficiency, these smaller players managed to overcome those external difficulties beleaguering the entire sector and succeeded to grow from strength to strength. For instance, Hongqiao gains an edge over its peers by having cheap electricity supply from its parent firm. Meanwhile, Nanshan makes great savings in transportation by building its mills near ports.

As a long-established SOE, it would be absolutely difficult for Chalco to replicate the success stories of Xinfa, Hongqiao and Nanshan. But apart from relocating its dispersed mills and mines as well as establishing its own power supply, there is still something that the aluminum giant must strive to learn.

Being a rigid institution, Chalco has long been haunted by overstaffing. The newspaper quoted junior staff in the company as saying that management personnel often appear to outnumber the hands-on workers in the plants. Such impression seems a bit exaggerated but it is not totally unfounded.

As of last year, Chalco had about 97,990 employees with about 10,000 in executive grading. By contrast, Hongqiao had only 21,000 full-time workers, of which 334 were management staff. The contrasting figures suggest huge gaps in efficiency and productivity.

– Contact the writer at [email protected]




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