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Chalco set to cut capital spending after poor net

By Fu Chenghao | March 31, 2009, Tuesday | Print Edition

CHALCO, China's top aluminum producer, will cut capital expenditure by 34 percent to 13 billion yuan (US$1.9 billion) this year after posting a dismal profit for 2008.

To deal with difficult times, Chalco will strictly control mergers and acquisitions and suspend planned projects, Luo Jianchuan, its president, said yesterday.

"But we will still target the right firms (for takeover) as the current market condition offers a good opportunity for acquisitions and our cash flow is not bad," he said.

Battered by higher raw material costs in the first nine months of last year and slumping aluminum and alumina prices amid a global financial crisis, Chalco's net profit tumbled 99.9 percent to 9.23 million yuan in 2008 based on international accounting standards.

Aluminum prices plunged 35 percent on the Shanghai Futures Exchange last year as the economic downturn hurt demand from property, automobile and power grid industries.

Chalco posted a loss of 2.57 billion yuan in the fourth quarter based on domestic accounting standards, and expects this quarter to remain unprofitable as it writes down inventories built up when costs were higher.

Chalco has shut down 40 percent of its alumina capacity and 24 percent of its aluminum capacity, Luo said, adding that the firm may restart some capacities when the demand recovers in the second half of the year.

Aluminum prices have risen 11 percent this year due to the China's stimulus measures, seasonal demand and state reserve purchase.

Goldman Sachs said the price increases and a quick drawdown of inventory in the past weeks have indicated demand is picking up. The investment bank rates Chalco a "buy."

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