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Chalco to ride out low prices

By Yu Tianyu (China Daily)
Updated: 2008-09-26 09:08

 

Visitors examine Chalco products at an exhibition in Beijing. File photo

Aluminum Corp of China Ltd (Chalco), the country's biggest producer of the metal, is planning to maintain its production of primary aluminum despite low prices that may force smelters in China to cut production.

But China's aluminum smelters, the world's largest, may cut their capacity in the second half due to falling demand from builders and losses caused by lower prices, Luo Jianchuan, president of Chalco, said.

High costs and low prices have prompted some smelters to adjust production, Luo said, adding that Chalco is not considering cutting output.

Shanghai aluminum futures fell 1.8 percent on Wednesday, hitting its lowest record in four years on concerns over swelling stockpiles and worries China's smelters will continue to churn out metal despite weak demand.

Luo's comments came two months after China's top 20 aluminum smelters, including China Minmetals Corp and Yunnan Aluminum Co Ltd, agreed to cut production by more than 350,000 tons on an annual basis in July, due to power shortages and in the hope of pushing up prices.

The reduction is equivalent to about 2.8 percent of the nation's production last year of 12.6 million tons, according to statistics.

Some smelters are operating below costs at current prices in China, JPMorgan Chase &Co said this month.

Song Huaibin, an analyst at Guoyuan Securities, said some small and medium-sized smelters could also be cutting production due to losses of 1,000 yuan ($146.63) to 2,000 yuan for every 1 ton of aluminum produced.

Large smelters such as Chalco are able to keep costs down using their own aluminum mines so they are less affected by low prices, Song said, adding that their current costs are 10,000 yuan per ton, while the market price is about 15,000 yuan per ton.

Chalco produces over 10 million tons of alumina and 3 million of electrolytic aluminium per year.

Luo said that Chalco is confident about domestic primary aluminum consumption next year as the government is devising measures to boost demand.

He also said aluminum consumption is likely to be thwarted globally by the financial market crisis, but more time is needed to assess the extent of the impact.

Song said domestic aluminum demand largely depends on the country's economic growth. He said he was optimistic about the aluminum market, provided China didn't suffer any economic setbacks in the short term.

The real estate industry accounts for a third of demand for the light metal in China. But the nation's property market could be headed for a meltdown, as sales and prices slump, Morgan Stanley said this month.

China's 25 steelmakers, including Baosteel, have lowered steel product prices amid the market downturn.