BHP Billiton quiet about aluminium plans

BHP Billiton Ltd remained silent about whether it planned to follow Rio Tinto Ltd deeper into the aluminium market by making a $47 billion bid for Alcoa Inc of the US. Financial markets believe a bid may be just weeks away but the world's biggest miner has declined to comment on the speculation that has swept across bourses in the US, UK and Australia. Such a deal would upstage Rio Tinto's $US38 billion ($A43.9 billion) offer for Alcan Inc announced last week. Shares in BHP Billiton closed down 96 cents or 2.45 per cent at $38.20 on Monday, after the stock hit an intraday low of $38.01. Rio Tinto's grab for Alcan, which will make it the world's biggest producer of aluminium and fourth biggest of alumina, left Alcoa in a precarious position. Alcoa had made its own tilt at Alcan, before Alcan recommended the Rio Tinto bid. A BHP Billiton bid for Alcoa at $47 billion (equating to STG20 billion) would surpass the value of Rio Tinto's offer for Alcan. It would help BHP Billiton overtake Rio as the world's biggest producer of aluminium, and also make it the biggest producer of alumina. Consolidation is still expected to ramp up in the aluminium sector amid a buoyant outlook for Chinese appetite for the lightweight metal. Alcoa's failed bid for Alcan has also put a spotlight on Alumina, its 40 per cent joint-venture partner in Alcoa World Alumina and Chemicals (AWAC). "There's a few things Alcoa can do, including buying Alumina, or Alcoa could get out taken out by someone else, BHP or someone else, but all those scenarios bode well for Alumina," ABN Amro analyst Rob Clifford said. Mr Clifford said that in theory, an offer by BHP Billiton for Alcoa would be a good move. "The strategy would be good - it would make them the dominant player in alumina and allow them to be more proactive in terms of the price setting of that commodity," he said. "I think absolutely that would be strategically a very good move, but the strategy Rio had in taking over Alcan was also very sound, but it all comes down to price." BHP Billiton said it does not comment on market speculation and rumour. According to Credit Suisse First Boston the acquisition of Alcoa by BHP Billiton would lift its aluminium/alumina earnings before interest and tax to around 25 per cent in fiscal 2008, from seven per cent in fiscal 2006. "Aluminium has been the worst performing base metal in the past five years, but its prospects appear to be improving as supply growth from both China and Russia appears to be more muted than first anticipated," CSFB analyst Peter O'Connor said in a research note. But some analysts have also warned that such domination of the aluminium and alumina market by BHP Billiton may put it in the firing line of regulators worldwide. Aluminium is the most widely produced and consumed non-ferrous metal in the world. Its use is dominated by the transport and packaging sectors, but it may also have a strong future in aerospace. Alumina is another name aluminium oxide. Over the past four years, demand for aluminium has been around 7.7 per cent, double that of copper. Rio Tinto is forecasting growth of six per cent a year until 2011, underpinned by demand growth of 15 per cent a year in China. But while BHP Billiton's share price has shown some weakness, but Mr Clifford said it was more likely related to commodities prices rather than a potential move on Alcoa. "The global (resources) markets on Friday were off ... so they were generally softer across the board, and we're seeing some of that softness come through now," he said.