UPDATE 2-Chalco sees Q1 loss, then return to profit

* expects Q1 loss due to high-cost inventories

* sees second-half demand pick-up, govt stimulus helps

* production capacity shut, capex down by a third (Adds comments)

By Alfred Cang and Hongwei Li

SHANGHAI, March 30 (Reuters) - China's top aluminium firm, Chalco (2600.HK), forecast a pick-up in domestic demand later this year, allowing it to restart some capacity and return to profit after high-cost inventories forced a first quarterly loss in a decade.

"A slight domestic consumption recovery and the primary impact of the country's stimulus plan have driven up aluminium prices," company president Luo Jianchuan said on Monday.

"I am confident about the company's business outlook if domestic prices hold at the 13,000-14,000 yuan level," he told a briefing.

Luo forecast Chinese aluminium prices SAFc3 would fluctuate between 12,000-15,000 yuan ($1,756-$2,195) a tonne in 2009, with a $1,300-$1,800 range in London MAL3. Shanghai futures have risen almost 10 percent in the past month, while London prices have gained more than 5 percent.

Based on recent costs and prices, Aluminum Corp of China Ltd (601600.SS) would be profitable in the first quarter, but Vice President Chen Jihua said Chalco expected to post a loss as it has to work through high-cost stockpiles from last year.

Luo said he expected demand to improve in the second half, but Chalco would still cut capital spending by more than a third this year to 13 billion yuan because of the poor outlook for the oversupplied metal, which is used mainly in construction.

Chalco on Sunday posted a 2.57 billion yuan net loss in the fourth quarter and warned of a first-quarter loss as the global economic downturn erodes demand. [ID:nHKF080078]

RESUME PRODUCTION

Chalco has shut 39 percent of its 11 million tonnes of alumina capacity and 24 percent of its 4 million tonnes of aluminium capacity due to losses.

However, it may restart some of that halted capacity in the second half as consumption improves, Luo told reporters.

Low prices and weak demand have battered aluminium firms globally, and China has not been spared. Luo said that as of February, only 60 percent of China's total alumina production capacity of 19.74 million tonnes was operating and 57 percent of its primary aluminium capacity.

Luo said the amount of surplus capacity could fall slightly this year. China's aluminium output is expected to drop 4.4 percent to 12.6 million tonnes, while consumption is seen falling a smaller 1.9 percent to 12.26 million tonnes.

China's alumina production is seen falling to 21.5 million tonnes, while consumption is forecast at 24.3 million tonnes.

"The gap means China will import 3-4 million tonnes of alumina - a big slide from last year," Luo said. (Editing by Tom Miles & Ian Geoghegan) ($1=6.835 Yuan)