Chalco to Cut Spending by 34% This Year, Luo Says

By Helen Yuan and Xiao Yu

March 30 (Bloomberg) -- Aluminum Corp. of China Ltd., the nation’s biggest producer of the metal, said it will cut capital spending by 34 percent to as much as 13 billion yuan ($1.9 billion) this year as demand slides.

The Beijing-based company will also tighten mergers and acquisitions in domestic and overseas markets, as well as suspend planned projects to “cope with current difficulties,” President Luo Jianchuan told reporters today in Shanghai.

Chalco forecasts a first-quarter loss, after posting a 99.9 percent profit drop in 2008, because of lower aluminum prices and slumping demand. The company expects demand for the metal to pick up in the second half as China spends 4 trillion yuan in a stimulus package to reach economic growth of 8 percent this year.

“Cutting costs and spending should be the most effective way to improve earnings,” said Barry He, a Hong Kong-based analyst with Morgan Stanley today. “It’s not a good time for mergers and acquisitions because the whole industry is unprofitable.”

Chalco fell 3.5 percent to 10.52 yuan as of 12 p.m. in Shanghai after declining as much as 5.2 percent. In Hong Kong trading, the stock slumped 10 percent to HK$4.65, the biggest decline since Nov. 6.

Aluminum futures have gained 11 percent this year in Shanghai after tumbling 35 percent in 2008. Prices rose after the nation’s stimulus package started to take effect and because of “seasonal” domestic demand, Luo said.

“Aluminum prices have hit bottom in the first two months,” Luo said.

Output Cut

Chalco has reduced alumina production by 40 percent of capacity and aluminum output by 24 percent, Luo said. The company may improve capacity utilization when the market recovers in the second half of this year, he said. Local prices may stay between 13,000 yuan and 14,000 yuan a ton, he said.

“We will use up our high-cost inventories in the first quarter,” Chief Financial Officer Joshua Chen Jihua said at the same media conference. The value of the company’s stockpiles depreciated by 1 billion yuan at the end of 2008, he said.

Demand for the metal, used in window frames and planes, may post the slowest gain since 1997, Wang Feihong, an analyst at Beijing Antaike Information Development Co., said Nov. 12.

“It’s too early to say aluminum prices have bottomed,” said Sabrina Xie, a Shenzhen-based analyst at Guotai Junan Securities Co.

To contact the reporter on this story: Helen Yuan in Shanghai at hyuan@bloomberg.netjriseborough@bloomberg.net; Xiao Yu in Beijing at yxiao@bloomberg.net.