China aluminum shake-up planned in state reform push

China is trying to push its two biggest aluminum businesses together as part of a planned shake-up of state-owned enterprises (SOEs), industry sources said, a move that would create the world's largest aluminum maker.

Power company State Power Investment Corp (SPI) is in talks to hive off its aluminum assets to Aluminum Corp of China (Chinalco), allowing SPI to focus on power construction and generation, three industry sources told Reuters. The consolidation is shaping up as a test of Beijing's ambitions to restructure its vast but underperforming state-owned sector, particularly at a time of slowing economic growth.

If successful it would be a fillip for reform, but slow progress in what is seen as a relatively simple tie-up underscores the problems China faces in more challenging SOE consolidation, such as merging rivals in the same industry.

SPI, which inherited the loss-making aluminum assets when it was formed from the merger of two SOEs in June, wants to abandon the sector, which is suffering from a supply glut, the sources said. Shifting the assets would boost Chinalco's capacity to more than 7 million tonnes a year of primary metal, making it the world's biggest producer, ahead of Russia's Rusal (0486.HK). But while talks have been going on for the past two months, progress has been slow, with one stumbling block being Chinalco's reluctance to take over high-cost smelters, said a source familiar with SPI.

China's State-owned Assets Supervision and Administration Commission (SASAC), which manages SOEs on behalf of the central government, was considering the issue and would back the move if it did not dent Chinalco's profits, the sources said.

While only two big SOE mergers have been announced so far this year - SPI and the CRRC Group, which was formed from two regional railway firms - rumors have swirled around every sector that more are to come. Chinalco, whose aluminum business is mostly managed by its listed arm Chalco, has also been linked to China Minmetals Corp.