Price of Aluminium Corp. of China (NYSE:ACH) is down 18% year-to-date. This should not surprise many as the company reported weak 2007 Q4 and an even worse 2008 Q1 financial results. The company had to tap into short term borrowings of RMB 4.7bln in order to keep cash flow position stable. However this took a hit on liquidity measures. Underlying reason is overcapacity of alumina. For additional info, read the following story.
I have also 2008 Q1 figures where there is additional information: ACH increased short term borrowings from RMB3.1bln to RMB7.8bln! This kept cash position good however it also hurt liquidity big time. So your point of worsening cash position was well taken.
I agree, the company was not very successful in controlling operating expense. Or I'd rather say: the company could not sell the products - primarily alumina - at reasonable prices. If you look at "cost of revenue", it's been up 36.53% vs. total revenue up 23.08%. So the company was selling more in metric tons but at softening prices.
As this article testifies, softening alumina prices hurt profitability of Chalco.
http://www.reuters.com/article/marketsNews/idCNTHKG26740120080603?rpc=611&pageNumber=3&virtualBrandChannel=0
Softening prices are a result of increase in production capacity beyond market needs. Remember, there are two things: alumina and aluminum. My understanding is that ACH has built up excess capacity in alumina and this resulted in softening alumina prices.
I also understand that China's economy growing fast and as such current excess capacity won't last forever.
I think the key is to find capacity/production volume or trend for alumina and the same trend for market demand. If we can visualize how bad the situation is and project when oversupply will meet future demand, we can have a pretty good analysis showing where the company is going.