Aluminum Corp. of China, the nation's biggest producer, will slash annual production capacity by 18 percent and has said it may consider further cuts because of falling metal prices and weak demand.

The company will trim some production in provinces including Shandong, Henan and Liaoning and Inner Mongolia Autonomous Region, where costs were relatively higher, the Beijing-based company, known as Chalco, said in an e-mailed statement to Bloomberg News yesterday. The total capacity reduction will amount to 720,000 metric tons a year.

Chalco, Alcoa Inc and Rio Tinto Group are shutting smelters after the price of aluminum plunged by a third in three months.

"We expect more news on production cuts this quarter," said Chris Ding, a Beijing-based analyst at China International Capital Corp. "The level of the production cut was not enough to reverse an oversupply in China next year."

Chalco dropped 6.5 percent to HK$3.18 (US$0.41) in Hong Kong trading, taking this year's loss to 80 percent.

Chalco and 19 domestic rivals agreed to cut output by 10 percent in July. The largest producers in China had promised to cut output because of a power shortage and weakening demand. Chalco said on October 6 that third-quarter profits may tumble by more than half on higher costs and falling demand.

Aluminum for three months delivery on the London Metal Exchange dropped 0.5 percent to US$2,065 a ton.

Chalco may start to lose money this quarter, JPMorgan & Chase Co. estimated on October 15. Chalco had aimed to boost aluminum capacity to 3.6 million tons this year before the announcement. Capacity may be 3.2 million tons by the year end, CICC's Ding estimated.

China, the world's largest producer and consumer of aluminum, may have an oversupply of 2 million tons next year, Ding said. So far, production capacity cuts by smelters were less than 1.5 million tons, he said. United Co. Rusal, the world's largest aluminum smelter, said on October 16 that 75 percent of producers in China, Europe and the United States are unprofitable after the metal's price plunged.

Chalco had closed 10 percent of its total alumina capacity and shuttered smelters in Shandong and Henan provinces, a company official said.

(Shanghai Daily October 23, 2008)