Chinese aluminium smelter in talks to sell to Alcoa

US aluminium giant Alcoa Inc is in talks to buy its first smelter in China, marking a rare foreign incursion into the world's biggest aluminium sector as hopes fade for its joint venture with national champion Chalco. The move suggests Alcoa is determined to build a market position in China's aluminium smelting sector, with or without Aluminium Corp of China Ltd (Chalco).
Talks to buy into and expand the smelter in Panzhihua in south-western Sichuan province moved forward when senior Alcoa executives visited last week. Alcoa had first approached the parent of Ming Zhu Aluminium to buy the smelter in 2003.
"The talks have entered into detail," an executive at the Ming Zhu smelter in Panzhihua told Reuters, without elaborating on the price or timing of a final deal. Alcoa would invest in a hydro-power plant and expand the capacity of the smelter to 200,000-300,000 tonnes in an investment that would cost well over 1 billion yuan.
"We want Alcoa to come in," the executive said. Alcoa had been stymied in efforts to invest in an alumina and aluminium joint venture with Chalco, China's national champion, and last year sold off its 7 percent stake in that company.
However, the two did partner in buying a share of Rio Tinto, the world's largest aluminium producer after it took over Alcan, to try and block a take-over by BHP Billiton. "The market should not be surprised by Alcoa's move. When Alcoa sold Chalco's shares last year the move indicated the end of the joint venture," Geoffrey Cheng, analyst at Daiwa Securities said.
"The stake sale gave an option to Alcoa to look for alternative ways to build market position in China." An Alcoa spokesperson in Beijing was not available for comment. The target smelter is designed to have 100,000 tonnes of annual aluminium smelting capacity, but so far has installed production pots only for 10,000 tonnes due to lack of funds from its parent, a Guangzhou-based air conditioner manufacturer, investment officials for the Panzhihua government said. "The total investment for the smelter was planned for 1.1 billion yuan. But the company so far has injected only about 200 million yuan," a director at the Panzhihua government's investment office said.