October 16, 2015 / 6:11 PM / 5 years ago

Chinalco plans shutdown of biggest aluminum smelter: report

HONG KONG (Reuters) - Aluminum Corp of China (Chinalco), the country’s top producer of the metal, plans to shut down its biggest smelter - accounting for about an eighth of its total capacity - due to low prices, an industry body said.

A security guard stands in position in front of the company's and Chinese flags outside the headquarters of Aluminum Corp of China (Chinalco) in Beijing in this June 5, 2009 file photo. REUTERS/Christina Hu/Files

The shutdown reflects mounting pressure on even state-owned companies in the face of slower economic growth and a planned restructure of state-owned enterprises, although it is not expected to have much impact on a forecast domestic output surplus this year.

Chinalco vice president Jiang Yinggang announced the shutdown of the Liancheng smelter in the northwestern province of Gansu last week during a visit with other company officials, according to a report on the website of industry body China Nonferrous Metals Industry Association.

Chinalco had no immediate comment when contacted by Reuters.

The smelter has an annual capacity of about 550,000 tonnes, analysts said, compared with Chinalco’s total capacity of more than 4 million tonnes.

Liancheng was Chinalco’s worst performing smelter and the company had been unable to turn it around, the report said, citing Jiang.

Liancheng had recorded losses of 1.99 billion yuan ($313 million) since 2011 due to high production costs and weak aluminum prices, which had fallen up to 36 percent during the period.

Production costs at Liancheng averaged 13,860 yuan ($2,180) a tonne in the first 8 months of this year, Jiang said. This compared to an average in China of about 12,840 yuan and 11,330 yuan a tonne for the lowest cost producer, he said.

Jiang said that in the current market it would be difficult for aluminum prices to rebound to 13,000 yuan.

The report gave no details on the timing of the shutdown, but Xu Hongping, an analyst at China Merchants Futures, said it should be completed by end-November.

Chinalco could close more loss-making smelters if prices stayed weak in coming months as it looks to maintain profits, an executive at a smelter in Guizhou province told Reuters.

Its listed unit swung to a net profit in the first half of this year after posting a record loss in 2014.

Spot aluminum in China has hovered around six-year lows since the third quarter, trading at about 11,170 yuan per tonne on Friday, the lowest since late 2008.

The planned Liancheng shutdown could face opposition from the local government and its electricity supplier, Xu said.

Even if it went ahead as planned, it would be too late to have much impact on an expected surplus of about one million tonnes this year due to overcapacity, she added.

($1 = 6.3576 Chinese yuan renminbi)

Reporting by Polly Yam; Editing by Richard Pullin

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