Alcoa joins hands with CITIC Group
By Hu Yuanyuan (China Daily)
Updated: 2005-10-13 08:44

Alcoa, the world's leading aluminium producer, set up a joint venture with CITIC Group yesterday, a move to further accelerate its expansion in the Chinese market.

The Qinghuangdao-based Alcoa Bohai Aluminium Industries Company boasts a capital of 1.87 billion yuan (US$231 million) and the total investment of the factory is expected to hit 2.8 billion yuan (US$346 million).

"With state-of-the-art techniques and management expertise from Alcoa, we decided to leave the major stake to our foreign partner," Chen Xiaoping, assistant president of CITIC Group, told China Daily in an exclusive interview. "Besides, as CITIC Group is shifting its business focus to financial services, we would like to concentrate on the core business."

With 1.36 billion yuan (US$168 million) coming from Alcoa, the aluminium giant takes a 73 per cent stake of the joint venture company. Moreover, Alcoa plans to pour some US$200 million in developing equipment.

With a 27 per cent stake, CITIC Group mainly provides service and equipment support for the new company, leaving the controlling power of manufacturing and management to Alcoa.

The annual aluminium production of Alcoa Bohai Aluminium Industries Company is likely to top 225,000 tons, becoming one of the top three aluminium manufacturers in the country. The new joint venture is Alcoa's largest project in China, with around 20-25 per cent of its output to be exported.

Since Alcoa set up its representative office in Beijing in 1993, the giant has established nine wholly owned and joint venture operating companies that provide innovative solutions for customers in all major markets.

Although China's aluminium industry, the world's largest, is expanding at a slower rate after tax breaks were ended and lending tightened, Alcoa is still optimistic about the market potential.

"We have decided to set up a factory in China within two years, churning out Litho Graphic, a product mainly used in printing," Jeff Watson, president of Alcoa Bohai Aluminum Industries Company, told China Daily. "But we are still in the engineering study phase and haven't decided where and with whom to start the project."

Moreover, Alcoa is in discussion with Aluminum Group of China on an upstream product project, with a deal expected before the end of this year.

"We believe the growth of China's aluminium production will continue to be strong," said Joseph Muscari, vice-president of Alcol.

China's output of the lightweight metal used in cars and aircraft will grow 15 per cent this year to 7.7 million tons, said Pan Jiazhu, vice-president of the Chinese Nonferrous Metals Industry Association. That compares with an average annual increase over the last five years of 21 per cent, said Pan, speaking at Metal Bulletin's International Aluminum Conference in late September.

The country is trying to slow the expansion of its aluminium industry to conserve energy and improve efficiency. The industry uses 4.4 per cent of the nation's electricity. Eighty per cent of Chinese aluminum producers are unprofitable, said Macquarie Bank in a report in August, citing government data.

The forecast is higher than an August growth estimate of 10 per cent made by Wang Gongmin, deputy chairman of the association. China's aluminium production in the first eight months of the year rose 21 per cent from a year earlier to 4.8 million tons, according to the National Bureau of Statistics.

According to Wang Feihong, an analyst with Beijing Antaike Information Development Co, the country will announce guidelines to curb capacity expansion and rein in exports of the lightweight metal in October.

The guidelines will include minimum capacity requirements for new aluminium projects, said Wang. Antaike is a research affiliate of the association.

As for Wang Huajun, an official from the metal association, the whole aluminium sector, excluding the alumina business, will be in the red this year.

So far this year, over 65 per cent of all aluminium companies in China have made losses, Wang said.

More than 40 small aluminium plants in China have been shut down because of heavy losses since last year.

China's aluminium output will reach 7.5 million tons this year, up from 6.67 million tons in 2004, he said.

Prices of aluminium in China have been on the high side in recent years, boosted by strong demand.

The prices hover at around 5,400 yuan (US$665.8) per ton, more than double compared with two years ago.

(China Daily 10/13/2005 page9)