March 30 (Bloomberg) -- Aluminum Corp. of China Ltd., the nation’s biggest maker of the metal, will cut capital spending by at least 34 percent this year to 13 billion yuan ($1.9 billion) after forecasting a first-quarter loss as demand slides.

The Beijing-based company will also tighten mergers and acquisitions in domestic and overseas markets, as well as suspend planned projects to “cope with current difficulties,” President Luo Jianchuan told reporters today in Shanghai.

Chalco yesterday forecast a first-quarter loss, after posting a 99.9 percent profit drop in 2008, because of lower aluminum prices and slumping demand. The company expects demand for the metal to pick up in the second half as China spends 4 trillion yuan in a stimulus package to reach economic growth of 8 percent this year.

“Cutting costs and spending should be the most effective way to improve earnings,” said Barry He, a Hong Kong-based analyst with Morgan Stanley today. “It’s not a good time for mergers and acquisitions because the whole industry is unprofitable.”

Chalco slumped 12 percent, the biggest decline since Nov. 6, to close at HK$4.56, in Hong Kong trading. The benchmark Hang Seng Index dropped 4.7 percent. The stock fell 3.8 percent to close at 10.49 yuan in Shanghai.

Aluminum futures have gained 10 percent this year in Shanghai after tumbling 35 percent in 2008. Prices rose after the nation’s stimulus package started to take effect and because of “seasonal” domestic demand, Luo said.

“Aluminum prices have hit bottom in the first two months,” Luo said. “We’re confident about this year’s earnings,” he said without elaborating.

Output Cut

Chalco has reduced alumina production by 40 percent of capacity and aluminum output by 24 percent, Luo said. The company may improve capacity utilization when the market recovers in the second half of this year, he said. Local prices may stay between 13,000 yuan and 14,000 yuan a ton, he said.

“We will use up our high-cost inventories in the first quarter,” Chief Financial Officer Joshua Chen Jihua said at the same conference. The value of the company’s stockpiles depreciated by 1 billion yuan at the end of 2008, he said.

Demand for the metal, used in window frames and planes, may post the slowest gain since 1997, Beijing Antaike Information Development Co. said Nov. 12.

“It’s too early to say aluminum prices have bottomed,” said Sabrina Xie, a Shenzhen-based analyst at Guotai Junan Securities Co.

China’s State Reserve Bureau has bought 580,000 tons of aluminum in January and February to help reduce smelters’ inventories and boost prices. That’s equal to half of China’s monthly output. The purchase may reach a total 1 million tons this year, Macquarie Group said.

The State Reserve’s aluminum purchase is “still too little”, Luo said.

To contact the reporters on this story: Helen Yuan in Shanghai at hyuan@bloomberg.netjriseborough@bloomberg.net; Xiao Yu in Beijing at yxiao@bloomberg.net.

Last Updated: March 30, 2009 05:42 EDT