Chalco Cuts Capacity 18% on Slumping Prices, Demand

Aluminum Corp. of China Ltd., the nation's biggest producer, will slash annual production capacity by 18 percent and said it may consider further cuts because of falling metal prices and weak demand.

The company will trim some production in provinces including Shandong, Henan, Liaoning and Inner Mongolia where costs were relatively higher, the Beijing-based company, known as Chalco, said in an e-mailed statement today. The total capacity reduction will be 720,000 metric tons a year.

Chalco, Alcoa Inc. and Rio Tinto Group are shutting smelters after the metal plunged by a third in three months. The global credit crunch and economic slowdown is curbing demand from manufacturers, carmakers and builders worldwide.

``We expect more news on production cuts this quarter,'' said Chris Ding, a Beijing-based analyst at China International Capital Corp. ``The level of the production cut was not enough to reverse an oversupply in China next year.''

Chalco dropped 6.5 percent to HK$3.18 in Hong Kong trading, taking this year's loss to 80 percent. The benchmark Hang Seng Index has lost 49 percent for the year. The announcement came after the market closed.

Chalco and 19 domestic rivals agreed to cut output by 10 percent in July. The largest producers in China had promised to cut output because of a power shortage and weakening demand. Chalco said Oct. 6 that third-quarter profit may tumble by more than half on higher costs and falling demand.

Aluminum for three months delivery on the London Metal Exchange dropped 0.5 percent to $2,065 a ton at 11:26 a.m. local time.

Lose Money

The company may start to lose money this quarter, JPMorgan & Chase Co. estimated Oct. 15. Chalco had aimed to boost aluminum capacity to 3.6 million tons this year before the announcement. Capacity may be 3.2 million tons by yearend, CICC's Ding estimated.

China, the world's largest producer and consumer of aluminum, may have an oversupply of 2 million tons next year, Ding said. So far, production capacity cuts by smelters were less than 1.5 million tons, he said.

United Co. Rusal, the world's largest aluminum smelter, said Oct 16 that 75 percent of producers in China, Europe and the U.S. are unprofitable after the metal's price plunged.

Chalco closed 10 percent of its alumina capacity and shuttered smelters in Shandong and Henan provinces, a company official said earlier this month.

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