China's Chalco Says to Shut High Cost, Outdated Capacity

HONG KONG, Mar. 31 -- Aluminum Corp of China Ltd (Chalco) (2600.HK: Quote)(601600.SS: Quote) said it plans to phase out high-cost and outdated alumina and aluminium capacity in three years to help lift the company to profitability.

Chalco, the world's largest aluminium producer by market value, last Friday reported a worse-than-expected 2009 net loss of 4.64 billion yuan ($679.7 million), its first full-year loss, as higher costs more than offset rising metals prices.

The company, also known as Chalco, said on Tuesday that it would close more than 200,000 tonnes of aluminium smelting capacity and shut 1 million tonnes of alumina capacity.

It said the closures were part of an ongoing restructuring programme to cut costs and were unlikely to affect production of primary aluminium and alumina used to make the metal, as it also planned to build new low-cost capacity.

"About 6.7 percent of (our) capacity will be closed by the end of next year. The (closed) capacity will be more than 200,000 tonnes," Chalco Vice-President Liu Xiangmin told a news conference in Hong Kong on Tuesday, referring to primary aluminium smelting capacity.

He said the company would switch part of its existing 2 million tonnes of old, high-cost alumina capacity to produce chemical grade alumina and could close the remaining 1 million tonnes in three years.

Chalco has about 4 million tonnes of aluminium capacity and about 11 million tonnes of alumina capacity in China.

The company said it planned to lift alumina output this year by more than a third from 2009's 7.78 million tonnes, and push up aluminium output by more than 15 percent from 3.44 million tonnes.

The company was building three alumina refineries in China with a total capacity of 2.3 million tonnes, company Chairman Xiong Weiping said at the same news conference.

Xiong said the company was also looking to build large aluminium smelters and alumina refineries in other countries with bauxite resources or rich energy supplies.

Bauxite is an ore used to refine alumina.

Self-produced bauxite accounted for about 66 percent of the company's consumption last year. The cost for self-produced bauxite was about 20 percent lower than that purchase from the market, Chief Financial Officer Chen Jihua said.

Xiong said besides a recent framework agreement Chalco signed for construction of a $1 billion aluminium plant in Malaysia, the company was also looking to build a smelter in Saudi Arabia and other aluminium and alumina projects in Southeast Asian countries.

Chalco had earmarked 14.6 billion yuan for capital spending in 2010, up 36 percent from a year earlier, of which about 3 billion yuan would be used for early stage works in preparation for overseas investments, said Xiong.

He said the company planned to raise up to 10 billion yuan ($1.47 billion) from an issue of new A shares, which added to 5 billion yuan cash from depreciation and profit for the year should be more than enough to fund capital expenditure and lower its gearing level from about 58 percent.