Chalco resists output cuts as low prices bite

China's top aluminium producer Chalco plans to maintain its output of primary aluminium despite low prices that may force higher-cost smelters to cut production, company president Luo Jianchuan said.

Chinese primary aluminium prices have dropped by a tenth this month to about 15,600 yuan per tonne because of growing stocks, weaker demand and the global financial crisis, which has dampened prices on the London Metal Exchange.

That price is below the production cost of about 17,000 yuan faced by smaller, higher-cost smelters in China, the world's top aluminium producing nation.

"We are not considering cutting production," Luo told reporters on the sidelines of an aluminium conference in Chongqing on Monday.

Chalco's Hong Kong shares, which had been trading around 4 percent down, bounced on Luo's comments and were up 5.3 percent by 0549 GMT at HK$6.00. The Shanghai stock was up 7.3 percent at 9.12 yuan.

Chalco's stock has lost about 80 percent of its value since hitting a high in October last year.

Chalco's closest domestic rival, Shandong Xinfa Aluminium Electricity Group, was still making profits and also no plans to cut production, its vice general manager Chen Lizhi told Reuters.

"Small and medium smelters are thinking about production cuts. We will not cut output," Chen said.

Neither executive would predict when high-cost smelters might start massive production cuts.

Luo and Chen's resolute stance on maintaining production comes two months after China's top 20 aluminium smelters, including Chalco and Xinfa, agreed to cut production by up to 10 percent due to power shortages and in hopes of pushing up prices.

SMELTING PRICE officials at the conference said the high-cost smelters were unlikely to shut down production within the next few months, although domestic demand could become saturated if the financial crisis cut export orders further.

Stocks of primary aluminium at private and public warehouses now exceed 500,000 tonnes, having stood at between 400,000 and 500,000 tonnes earlier this month, they said.

"Those stocks are only at warehouses. Smelters also hold higher stocks at their plants," said a sales manager at Luneng Jinbei Aluminium, which sells alumina to smelters.

Although the manager did not estimate the size of the stockpiles, he said the firm expected the aluminium market to be weaker at least in the coming month and had cut alumina prices to 3,050 yuan per tonne on Monday from 3,150 yuan last week.

"We are going to cut the price to 2,900 yuan next month," he said.

Chalco's Luo said his firm was confident of 2009 Chinese primary aluminium consumption because the government was working on measures to boost domestic demand.

But he also said aluminium consumption was likely to be hit globally by the crisis in financial markets.

"It will certainly have an impact. London's prices have fallen sharply. Domestic prices have also dropped," he said.

"It all started from (weaker) consumption, particularly from the property market," he said, adding that the construction sector took about a third of the country's aluminium consumption.

After doubling or even tripling since 2005, property prices across China started to fall late last year. Property sales have slowed further as Beijing has curbed access to credit.

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