Chalco Wants to Link Power Costs to Aluminum Prices

Aluminum Corp. of China Ltd., the nation¡¯s largest producer of the metal, seeks to link power costs to the price of aluminum as part of a wider proposal to lower its energy bill.

The company is now in talks to buy power directly from utilities, which may help cut costs by between 0.03 yuan to 0.05 yuan per kilowatt-hour, President Luo Jianchuan told analysts and reporters in Hong Kong today. Average power costs last year was 0.39 yuan per kilowatt-hour.

China is allowing domestic aluminum smelters to negotiate direct power purchases from utilities as plunging metal prices led to losses. Chalco, as the Beijing-based company is known, is forecasting a second consecutive-quarterly loss and will cut capital spending by at least 34 percent.

Direct power purchases ¡°will significantly cut costs,¡± Luo said. The company is in talks to negotiate agreements that would affect 2.4 million metric tons of aluminum- making capacity, he said.

Chalco dropped 2.4 percent to HK$4.45 in Hong Kong trading today. The benchmark Hang Seng index rose 0.9 percent.

The company, which has reduced aluminum output by 24 percent, has no plans to expand cuts at the current metal price, Luo said today. Chalco¡¯s aluminum production costs including tax are about 13,500 yuan a ton, whereas the Chinese industry has an average costs of 14,000 yuan a ton, he said.

Aluminum futures in Shanghai have traded at an average of 11,969 yuan a ton this year.

Chalco is owned by Aluminum Corp. of China, known as Chinalco, which is proposing to invest $19.5 billion in Rio Tinto Group, getting stakes in mines and projects.

Xiong Weiping, chairman of Chinalco, said today the company ¡°will consider the maximum benefits to shareholders¡± when considering whether to inject related-aluminum assets it gets in Rio into Chalco. Xiong didn¡¯t elaborate in the meeting today.

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