Aluminum Corp of China Ltd (Chalco), the world's second-biggest alumina producer, yesterday said it would set up a primary aluminium joint venture with a total investment of 2.38 billion yuan (US$293 million) in north China's Shanxi Province.

The new plant, co-invested by Hong Kong-listed Chalco and Shanxi Guanlu, a local aluminium smelter listed on the Shenzhen Stock Exchange, has a total registered capital of 1 billion yuan (US$123 million), Chalco said in a statement yesterday.

Chalco will pump 510 million yuan (US$63 million) in cash for a 51 percent stake in the new venture, and its partner Shanxi Guanlu will inject 490 million yuan (US$60 million) worth of assets from an existing smelting facility for the remaining 49 percent, according to the accord.

The new Chalco-Guanlu investment will have an annual production capacity of 220,000 tons of primary aluminium. It will also be involved in the production and sale of carbon anodes, generation and sale of electricity, as well as development and provision of ancillary technical services, the Chalco statement said.

The Hong Kong-listed company said the establishment of the venture would help to reduce market risks of the group's aluminium products.

"The setting up of the joint venture aims to further enhance our production capacity and strengthen vertical integration in the company's aluminium production business," it said.

Chalco is principally engaged in bauxite mining, alumina refining and primary aluminium smelting. The main business of Shanxi Guanlu lies in the production and processing of primary aluminium.

Shanxi Guanlu said market risk still exists for the new venture due to fierce competition, but they would improve technology to increase the new establishment's competitiveness.

Many smelters in China have been operating at a loss this year due to the rising price of the raw material alumina and because of Beijing's measures to cool investment in the energy-intensive aluminium industry.

As many as 40 small aluminium smelters were shut down this year across the nation due to heavy losses, statistics from the country's nonferrous metals association revealed.

Chalco in the first half of this year produced 465,000 tons of primary aluminium, and 3.49 million tons of alumina. It reported an operating profit of 5.2 billion yuan (US$641 million) for the six-month period, up 8.9 percent from the same period last year.

Shanxi Guanlu's net profit fell 44 percent to 19.5 million yuan (US$2.2 million) in the first half of 2005.

To address the losses, China's 23 major aluminium smelters, representing more than 60 percent of the country's aluminium output, announced they would cut production by 10 percent at the beginning of the this month. Aluminium prices closed at a 10-year record high at US$2,217 a ton on Monday on the London Metal Exchange.

Chalco's shares ended unchanged at HK$5.90 (76 US cents) yesterday on the Hong Kong Stock Exchange, and Shanxi Guanlu's increased 3.1 percent to 2.74 yuan (34 US cents) yesterday in Shenzhen.

(China Daily December 8, 2005)