Chalco sees Q1 loss, then return to profit

By Alfred Cang and Hongwei Li

SHANGHAI (Reuters) - China's top aluminum 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 aluminum 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 aluminum prices would fluctuate between 12,000-15,000 yuan ($1,756-$2,195) a ton in 2009, with a $1,300-$1,800 range in London. 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.

RESUME PRODUCTION

Chalco has shut 39 percent of its 11 million tons of alumina capacity and 24 percent of its 4 million tons of aluminum 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 aluminum 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 tons was operating and 57 percent of its primary aluminum capacity.

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

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

"The gap means China will import 3-4 million tons of alumina - a big slide from last year," Luo said.

(Editing by Tom Miles & Ian Geoghegan)

($1=6.835 Yuan)