aluminium - chalco muscles bauxite newcomers

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    Friday, September 26, 2003

    Chalco muscles bauxite newcomers
    Dominant aluminium producer chases controlling stakes in return for much-needed processing and refining technology


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    China's dominant aluminium producer is reportedly using its stranglehold over crucial production inputs as a bargaining chip in return for equity stakes in new market entrants.
    Aluminum Corp of China (Chalco) has asked for a controlling stake in privately owned East Hope Group's planned 4.59 billion yuan (HK$4.3 billion) alumina greenfield project in Hunan province as a condition for granting access to key patented refining technology, according to industry sources.

    East Hope needs the technology to process bauxite mined on the mainland, since the raw material usually has a higher silica content than bauxite found in other parts of the world.

    State-controlled Chalco - the world's second-largest alumina producer and the mainland's largest aluminium maker - owns a patented process that new rival entrants such as East Hope need to produce alumina at competitive prices.

    East Hope has responded by lobbying the central government to gain access to the technology. Soaring aluminium prices, spurred in part by increasing production in China, has triggered the flood of entrants.

    East Hope has a 51 per cent stake in the project, which is expected to come on stream next year and be capable of producing 1.05 million tonnes of alumina annually.

    An executive at the firm's Shanghai headquarters declined to comment yesterday, saying the firm did not want to publicise the sensitive issue.

    East Hope has secured local government approval to tap bauxite mines in Hunan, but the project still needs central government approval.

    A Chalco spokesman said the firm had held talks about investing in the East Hope-led alumina project but he was not aware whether they were continuing.

    Chalco was open to talks with state or private companies interested in paying for its technologies, he said. These production processes were developed by its research institute in Henan province, the only institution of its kind in China dedicated to light metals research and technological innovation in the aluminium industry.

    Bauxite is refined into alumina, which is then smelted into aluminium, a basic material used in the vehicle and construction industries.

    Chalco has secured a 33 per cent stake in an alumina project in Guangxi province, which is 33 per cent held by China National Metal and Minerals Import and Export Corp and 34 per cent owned by Guangxi Development and Investment.

    Private firms are keen to break Chalco's stranglehold on the alumina market, as spot prices for the metal have doubled since the start of the year to US$300 a tonne.

    While some, such as East Hope, have chosen to locate plants close to bauxite mines in the mainland's interior, others plan to build plants along coastal areas and import bauxite instead of relying on Chalco's supply.

    Jim Lennon, an executive director of commodities and mining research at Macquarie Bank, said the success of the newcomers would hinge on their ability to raise billions of yuan of investment and the technology they could secure.

    "Unlike the steel, aluminium and copper industries whose smelting technologies are relatively simple, alumina refining technology is complex and Chalco has spent years perfecting it," Mr Lennon said.

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