A plan by three mainland firms to build a six billion yuan (HK$5.65 billion) alumina plant with a capacity of up to 2.4 million tonnes a year will break Aluminium Corporation of China (Chalco)'s dominance and bring down prices in the medium term, analysts and industry executives said yesterday. But they said the addition of new capacity would be gradual and that only a few of the mainland's recently unveiled projects were likely to be completed due to market and regulatory uncertainties.
Gansu province-based Gansu Liancheng Aluminium has signed a letter of intent with Shanxi Changxin International Trade and Lianyun Port Authority to build the plant at Lianyun port in Jiangsu province, some 300km north of Shanghai, a Gansu Liancheng official confirmed.
He said the plan was preliminary and subject to government approval and financing. Construction would take two years. The first phase of the project will provide annual capacity of 500,000 tonnes and the remainder will be added according to demand.
A proposed 300,000 tonne-a-year aluminium smelter is also on the cards. Gansu Liancheng now has the capacity to make 230,000 tonnes of aluminium a year.
The location of the proposed alumina plant at a port meant it would import bauxite, the raw material for the production of alumina, which would then feed the aluminium smelter, the official said.
The unveiling of the Jiangsu project comes two months after East Hope Group signed a joint-venture agreement with Henan province's Huanghe Aluminium, United States-based JD Metal Works and Pioneer Global Investment to build a 1.05 million-tonne-a-year alumina plant in Henan.
Total annual capacity of the two proposed alumina projects is 3.45 million tonnes, significant compared to China's only alumina producer Chalco's capacity of 5.14 million tonnes at the end of last year.
Chalco is pursuing an aggressive expansion plan to increase capacity to 7.27 million tonnes by the end of 2005.
The Gansu Liancheng official admitted that although many mainland aluminium plants aspire to build their own alumina plants in a bid to lower raw material costs, "only a few will likely be able to complete their plants".
Alumina prices have risen 60 per cent in the past nine months due to a worldwide shortage.
Analysts said the cyclical nature of the alumina industry and long time needed to increase capacity had resulted in sharp price movements in the past, and history could be repeated with producers around the world flocking to add capacity.
