China will continue its macro economic control measures on the aluminium industry in order to adjust the structure of the sector, said the National Development and Reform Commission (NDRC), the nation's leading industrial watchdog.

NDRC said efforts to curb further expansion of the high-energy consuming aluminium and alumina sectors should continue in 2006.

The commission said authorities should prevent new aluminium projects, limit overcapacity in existing facilities, curb investment in alumina projects and enhance the threshold for entering the sector.

With active investment in China's aluminium industry in the past few years, overcapacity has become a pressing issue.

The growth rate slowed down, and many aluminium enterprises suffered losses.

In 2005, the total production capacity of China's aluminium industry amounted to 10.7 million tons, but the country only consumed 7.12 million tons, accounting for 75 to 78 percent of the production capacity.

Domestic aluminium manufacturers continue to suffer losses due to a decrease in the price of aluminium, as well as the high price of alumina, the main raw material, said Lang Dazhan, deputy general manager with China Non-Ferrous Metal Industry Association.

Nearly half of China's alumina demand is met by imports, Lang pointed out.

China's aluminium exports are controlled by government policies and the country reintroduced a 5-percent tariff on aluminium exports.

But because of the great oversupply in the domestic market, the export of aluminium still amounted to 1.32 million tons in 2005.

The Chinese Government has paid great attention to the restructuring of the aluminium sector. NDRC said since 2004 the nation has suspended or stopped new aluminium manufacturing projects worth a total of 17.3 billion yuan (US$2.16 billion).

"China's aluminium industry must embrace consolidation. And the nation's biggest aluminium producer, Aluminium Corp of China Ltd (Chalco), is doing a good job facing up to market depression," said Lang.

"Despite overcapacity in the sector, Chalco, the world's second-largest alumina producer, has started merger and acquisition (M&A) activities in the past year."

Its latest acquisition in the domestic market took place in March, when Chalco agreed to buy Fushun Aluminium Co for 500 million yuan (US$62.1 million).

"Chalco's purchase will boost its production capacity," said Zhang Lei, a researcher with China Merchants Securities.

Zhang said the company is trying to become a more integrated player through capacity expansion and domestic acquisitions.

Apart from the domestic market, Chalco is attempting to explore overseas markets such as Brazil, Australia and Viet Nam.

It is poised to make its largest single investment in Australia, as it seeks to ease shortages of raw materials.

The company will submit a final bid by May to build a A$2.9 billion (US$2.2 billion) bauxite mine and refinery in Queensland.

Sources said the company will take a controlling stake in an alumina plant in Viet Nam that would cost more than US$1 billion.

Chalco will go on with its M&A plans, said Xiao Yaqing, Chalco chairman and chief executive officer.

"We hope that through our M&A activities, the production of primary aluminium can be increased. We expect to reach an output of 3 million tons of primary aluminium by the end of the year," said Xiao.

Last year the Chinese state-owned company produced 7.18 million tons of alumina and 1.05 million tons of aluminium metal.

(China Daily April 27, 2006)