China Aluminum Smelters Lobby Government for Help

The biggest aluminum smelters in China, the world's top producer, are calling on the government for tax breaks and purchases by the state reserve to help them cope with the bear market, said an industry official.

``Smelters have come to realize that production cuts alone don't help,'' Wen Xianjun, deputy chairman of China Nonferrous Metal Industry Association, said today in a phone interview from Beijing. ``They're hoping for supportive polices such as export tax benefits, an easing in bank lending and even government buying for strategic reserves.''

China's aluminum prices have tumbled 22 percent this year to less than the operating costs of domestic smelters as the economy grows at the slowest pace in five years and the credit crisis curbs demand. Aluminum Corp. of China Ltd., the biggest producer, and other smelters have reduced output.

``Before the central government really puts out any anything, it is likely to acquiesce to support policies by local governments where aluminum-making is a substantial contributor to GDP and a source of tax revenue,'' Eric Zhang, an analyst at CBI China Co., said today by phone from Shanghai.

Chalco, as Aluminum Corp. is known, Yunnan Aluminum Co. and Shandong Nanshan Aluminum Co. are among the dozen smelters that met officials from China's commerce and finance ministries today, Wen said, adding nothing concrete had been decided yet. Calls to the three companies were not immediately answered.

Falling Profit

Third-quarter earnings of Chalco slumped 93 percent as metal prices dropped and slowing economic growth hurt demand. The company has halted 720,000 metric tons of its 3.5 million- ton capacity.

Aluminum futures dropped by more than a fifth this year to 13,155 yuan a ton on Oct. 23 on the Shanghai Futures Exchange. Chinese smelters have an average production cost of 18,000 yuan to 18,500 yuan a ton, according to JPMorgan. Prices on the London Metal Exchange have fallen 15 percent this year and traded at $2,046 a ton at 10:34 a.m. in London.

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 price of the metal plunged.

China imposed a 15 percent tax on exports of aluminum alloys in August in the latest effort to curb over-investment in the energy-intensive industry.

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