Aluminium Corp of China (Chalco) plans to spend up to two billion yuan this year buying smelters that have racked up losses due to the difficult operating conditions in the industry. It is part of a 10.5 billion yuan sending spree by the company, the majority of which is earmarked for the expansion of alumina production capacity. Chalco, the nation's dominant producer of alumina - the raw material refined from bauxite for aluminium production - expects to buy aluminium smelting plants totalling 100,000 to 200,000 tonnes of annual capacity, chairman Xiao Yaqing said. Together with the acquisition of a controlling 28 per cent stake in the 160,000-tonne-a-year Lanzhou Aluminium to be completed later this year, the company's total aluminium capacity could be raised up to 360,000 tonnes a year. It had 830,000 tonnes of capacity at the end of last year. Chalco's acquisition plan comes as the aluminium industry suffered widespread losses last year mainly because of a 43.9 per cent rise in alumina prices and two power tariff increases that shaved away already thin profit margins. Even Chalco, China's largest aluminium producer, reported a 32.2 million yuan operating loss in its aluminium division last year, compared with a profit of 445.23 million yuan in 2003. Its average overall power tariff rose 10.1 per cent to 31.6 fen per kilowatt-hour (kWh) from 28.7 fen in 2003. Each tonne of aluminium smelted by Chalco consumed 14,560 kWh last year. But its dominance in the lucrative alumina industry saw operating profit from its alumina operation jump 83.41 per cent to 9.37 billion yuan, giving the company a total net profit increase of 75.2 per cent to 6.22 billion yuan. To take advantage of its dominance in the alumina sector, helped by the central government's recent decision to call a halt on new alumina projects planned by private firms and local governments to prevent over-investment, Chalco plans to raise alumina capacity 31.37 per cent to 8.5 million tonnes this year. The company aims to issue up to 1.5 billion A shares to raise not more than eight billion yuan, which will mostly fund alumina projects. The issuance will be subject to China Securities Regulatory Commission's approval and market conditions. Mr Xiao projected that alumina prices would not be significantly higher than current high levels this year, although they will stay relatively high due to limited new capacity globally. A Morgan Stanley research report predicted that alumina prices would soften gradually this year due to weaker demand as aluminium production growth slows down after China abolished an 8 per cent export value-added tax rebate and imposed a 5 per cent export tax. Higher power tariffs - expected as early as May - will also tame alumina demand growth. Last year China's aluminium output grew 20 per cent to 6.67 million tonnes.