The rating on China Shandong-based aluminum producer China Hongqiao Group Ltd. reflects the company's high concentration risk, its short operating track record, and key-man risk. In addition, China Hongqiao is likely to generate negative free operating cash flow in 2012 due to a combination of increasing industry risks and still high capital expenditure. These weaknesses are partly offset by the company's low cost position, proximity to its customer base, and the good long-term demand prospects for aluminum products in China. We anticipate that China Hongqiao's operating margin may remain subdued in 2012 as the economic outlook remains gloomy, prices of raw materials continue to rise, and the company seeks to invest in key projects. The operating margin is likely to
