Chalco’s Xiong seeks stakes in coal, power producers

Finance

Aluminum Corp of China Ltd, the country’s biggest producer of the metal, is seeking to invest in coal and power producers, and is studying projects in Southeast Asia to access cheaper power and raw materials.

“In neighbouring countries such as in Southeast Asia, there are rich bauxite, coal and hydropower resources, and Chalco is actively seeking investment opportunities,” Chairman Xiong Weiping, 53, said in a Bloomberg Television interview in Hong Kong. “We are willing to form strategic partnerships with power and coal companies by stake purchases to ensure stable and low-cost supplies.”

Xiong plans to diversify into coal, iron ore and rare earths as higher fuel costs and aluminum overcapacity in China, the world’s biggest metals consumer, crimped profit margins. The Beijing-based company, known as Chalco, posted a loss of more than Yu500 million (US$74 million) in June alone on power costs.

“Chalco will not simply expand aluminium and alumina capacity in the future, and will focus on building our own coal production base and coal-fired or hydropower plants to produce aluminum,” Xiong said. The company buys almost 20Mt of coal a year.

“With electricity cost accounting for roughly 35% of smelting cost, we believe the company would remain under margin pressure, unless there is a strong recovery in demand,” Goldman Sachs Group Inc said in a report yesterday.

Chalco in February agreed to jointly develop and operate a US$1 billion smelter with billionaire Syed Mokhtar Al-Bukhary in Malaysia’s eastern Sarawak state where a US$2.4 billion hydroelectric dam is near completion.

“Securing coal and hydropower resources is key to ensuring Chalco’s cost competitiveness and protect against price fluctuations,” Xiong said. It plans to build two to three coal-production bases in three years, he told reporters.

Indonesian coal shipments to China more than tripled to 34.8Mt in the first seven months of the year, or about a third of the nation’s total purchase. The Southeast Asian country is China’s largest coal supplier, according to Chinese customs data.

Chalco plans to shutter 330,000t of outdated aluminium capacity by 2011, Xiong said today. That would be about a third of the 1Mt of capacity the Chinese government wants closed in the whole country as part of its plan to curb metal pollution and energy usage.

The company plans to build new low-cost facilities at Liancheng Aluminum Plant in Gansu, Xiong said.

China, the biggest consumer of aluminium, is suffering from overcapacity as production has “developed too fast,” depressing prices, Xiong said. The company yesterday said output in China would surpass demand by 500,000t.

Demand has also been hurt as the government curbed property speculation, he said. More than a third of aluminium demand comes from the property sector.

“China will step up urbanisation and will restructure the real estate market, in particular provide more government-subsidised apartments, which will boost aluminum demand,” Xiong said. “In the next three years, aluminium demand will increase as the economy grows and aluminium replaces other metals. I expect the 20-30% overcapacity will disappear.”

Aug 25 (Bloomberg)