Chalco pays 412m yuan for rival stake

PUBLISHED : Saturday, 15 July, 2006, 12:00am
UPDATED : Saturday, 15 July, 2006, 12:00am

Aluminum Corp of China (Chalco) has agreed to buy a 55 per cent stake in a rival aluminium smelter for 412 million yuan, its latest effort to consolidate a fragmented industry that has been suffering from overcapacity and low profitability.

Chalco, China's largest aluminium smelter and the world's second-largest maker of alumina, will purchase the stake in Shandong Huayu Aluminium and Power from Shandong Huasheng Jiangquan Thermal and Power and Linyi Jiangtai Aluminium.

Shandong Huayu had an annual production capacity of 100,000 tonnes and audited net assets worth 899 million yuan at the end of last year.

The purchase follows the acquisition of a 66.4 per cent stake in Guizhou-based Zunyi Aluminum for 219 million yuan on June 20 and a 29 per cent interest in Jiaozuo Wanfang Aluminium Manufacturing for 247 million yuan in May.

Zunyi Aluminum has annual capacity of 113,000 tonnes a year, while Jiaozuo Wanfang Aluminium has 200,000 tonnes.

In March, Chalco chairman Xiao Yaqing said the firm planned to double its smelting capacity to three million tonnes this year after achieving the same increase last year mainly through acquisitions.

China's aluminium smelting industry, the world's largest since 2001, suffered from widespread losses last year due to low aluminium prices, power tariff increases and high prices for alumina, a raw material needed to make the metal.

Profitability improved this year on the back of a sharp rise in aluminium prices in the first five months. But the gain was eroded by an average 3 per cent rise in power tariffs early this month, as well as retreating aluminium prices. The three-month London Metals Exchange aluminium contract price fell from this year's peak of US$3,185 in May to about US$2,600 yesterday.

China's annual aluminium smelting capacity of 10.7 million tonnes at the end of last year had a utilisation rate of only 75 per cent to 78 per cent, according to the National Development and Reform Commission. Consumption was just 7.12 million tonnes. If projects in the pipeline become operational, capacity could rise to 11.6 million tonnes this year, 12.5 million tonnes next year and 13 million tonnes by 2010, it estimated.