Chalco says to cut capex, smelters operating at loss

Aluminum Corp of China Ltd ,the world's No.3 alumina maker, said on Tuesday it would cut capital spending by at least 20 percent in 2009 amid weak demand for the metal, according to analysts.

China is expected to shut another 1 million tonnes of aluminium capacity in the fourth quarter if the market situation continues to deteriorate, one analyst quoted chief financial officer Chen Jihua as saying in a telephone conference.

But the company, also known as Chalco, did not plan to shut more aluminium capacity this year after it temporarily shut down 720,000 tonnes earlier this month, Chen told the analyst conference.

Another 2 million tonnes of capacity outside Chalco, the country's top aluminium and alumina maker, had been shut, he added.

Low prices and high raw material and production costs are hitting aluminium smelters in China, the world's top producer and consumer of the metal, widely used in industries including construction and automobiles.

Aluminium smelters across the industry in China were now operating at a loss, with prices of the metal falling to 13,000 yuan per tonne while production costs were between 15,000 yuan and 16,000 per tonne, Chen said.

The company targeted spending 20 billion yuan ($2.92 billion) in capital investment in 2008, and it would scale down the spending by at least 20 percent next year, he told analysts.

Chalco reported on Sunday a larger-than-expected 92 percent drop in third-quarter earnings due to weak aluminium and alumina prices and rising costs.

A slowdown of the housing market has hit aluminium demand especially hard, as about 30 percent of aluminium demand in China is from construction, J.P. Morgan said in a research report.

Chalco's Hong Kong shares rebounded 10 percent on Tuesday, lagging a 14.4 percent jump in the benchmark Hang Seng Index .HSI after a global sell off.

The stock has lost 85 percent of its market value this year against a 56 percent fall in Hang Seng Index and a 65 percent drop in the index for major Chinese companies listed in Hong Kong .HSCE. ($1=6.843 Yuan)

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