SYDNEY - Rio Tinto Ltd. on Tuesday allocated $1.8 billion to boost alumina production in Australia by millions of tonnes, the latest big miner to endorse forecasts for strong aluminium markets. Refining of alumina is the second stage in a three-stage process to make aluminium and requires vast tonnages of bauxite to complete. The move comes as Rio and rivals scour the globe for ways to place a bigger footprint on aluminium production amid sector forecasts for rising demand. This includes organic growth as well as mergers and acquisitions, such as the teaming of Russian Aluminium (RUSAL), Siberian-Ural Aluminum Company (SUAL) and Switzerland's Glencore earlier this year and Alcoa Inc.'s hostile $28 billion takeover offer for Alcan Inc. . "We see a strong demand forecast for the aluminium sector going forward," said Eamon McGinn, an analyst with Australian Bureau of Agricultural and Resource Economics. Australia is the world's largest supplier of alumina, produced from seven refineries, which next year should yield a combined 20.5 million tonnes of the powder-like material.
MIDDLE EAST NEEDS "The western world still needs to feed new aluminium smelters in the Middle East, and that is going to take a lot of alumina," said Tony Robson, an analyst with Global Mining Research in Sydney. Rio sees a global oversupply of alumina until 2010, when its new production kicks in. "After 2010 we see the market falling into balance," a Rio spokesman said. For Rio, its expansion work, to start in the third quarter of 2007 and take about three years, would lift output at its Yarwun refinery in northern Australia by 2 million tonnes to 3.4 million tonnes by 2011. Rio earlier had discussed limiting the expansion to 1.4 million tonnes before opting for the higher output. The refinery design allows for further expansion which could eventually see output exceed 4 million tonnes a year. "The expansion of Yarwun is one of the most significant investments made by Rio Tinto in recent years," Rio's recently appointed chief executive, Tom Albanese, said. "The attractive fundamentals of the aluminium industry, combined with Yarwun's well-located, low-cost position and our excellent bauxite resource at Weipa, reinforce the deep underlying strength of the group's organic pipeline." Global aluminium demand has risen 5.6 percent a year since 2000, compared with about 2.5 percent annual growth in the previous two decades, industry figures showed. In China alone, aluminium consumption is seen growing 18 percent in 2008, McGinn said. Increases in aluminium prices have lagged other base metals such as nickel and copper in recent years, thanks to nagging supply overhangs, but should still show 3 percent growth this year to an average of $2,655 a tonne, McGinn said. Meanwhile, demand from fast-industrialising China and India was leading a resurgence in blueprints for new projects. Chinese aluminium group Chalco <2600.HK> has agreed to develop the vast Aurukun bauxite deposit in eastern Australia as part of an alumina and aluminium-making project costing around A$3 billion ($2.5 billion). Australia's Queensland state last year picked Chalco -- Aluminum Corp. of China Ltd. -- from a field of 10 to submit a final proposal to develop the deposit in eastern Australia. It takes about four tonnes of bauxite to make two tonnes of alumina. Two tonnes of alumina are used to produce a tonne of aluminium. Aluminium for delivery in three months on the London Metal Exchange settled at $2,755 on Monday. Prices peaked at multi-year highs of around $3,000 last year.
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