UPDATE 1-China's Chalco to cut aluminium capacity 18 pct

Aluminum Corp of China Ltd (Chalco) aims to cut its aluminium capacity by 18 percent annually as China's largest producer of the metal reels from plummeting prices worldwide and tries to slash costs.

The planned reduction of about 720,000 tonnes of output appeared to fall below smelter officials' expectations for output cuts of 1 million.

The company, however, said it may cut production further depending on market conditions.

Chalco is only the latest Chinese smelter to take a hit from weakening demand, the result of slowing economic growth across much of the world.

Crumbling prices as economies slow are spurring smelters across China, the world's top producer and consumer of the metal, to shut high-cost capacity, reflecting a wave of shutdowns in the global market. [ID:nHKG316596]

"The cut had been expected," said Macquarie's Yeeman Chin. "But it's not enough to prop up prices."

Chalco did not say if the capacity reduction was permanent, nor did it describe how long it would last. Experts expect Chalco to restart capacity as soon as the market recovers.

The firm and its state-owned parent, Chinalco, have been struggling with the fallout of the global financial crisis.

Chinalco has had a major shareholding in Rio Tinto Plc (RIO.L: Quote, Profile, Research, Stock Buzz) frozen after the collapse of Lehman Brothers.

Chalco and Chinalco last Friday indefinitely suspended the issue of 5-year bills worth $1.2 billion.

Its shares ended down 6.5 percent on Wednesday and have lost more than 80 percent of their market value this year against a near 50 percent fall in the blue-chip Hang Seng Index .HSI.

London metal exchange prices MAL3 have slid nearly 40 percent since peaking in July.

The planned cut comes on top of 1.3 million tonnes of production cutbacks for alumina -- the main raw material in aluminium output -- unveiled so far this year.

Chalco plans to cut output mostly from facilities with higher costs and will immediately restrict or partly suspend production from areas such as Shandong, Henan and Liaoning provinces as well as in Inner Mongolia.

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