Itochu to Boost Alumina Investment as Chinese Demand Expands

Sept. 8 (Bloomberg) -- Itochu Corp. of Japan plans to spend about $350 million to buy stakes in bauxite and alumina projects overseas because of rising demand fueled by economic growth in China, the world’s largest consumer of aluminum. The company plans to acquire as much as 20 percent in two alumina refineries in Asia or Africa to obtain as much as 350,000 metric tons of supply, Katsuichi Uede, deputy general manager at Tokyo-based Itochu’s non-ferrous and metal materials department, said in an interview. Aluminum prices have gained 20 percent this year on the London Metal Exchange as China, the world’s third-largest economy, became a net importer. Trading companies such as Itochu and Sumitomo Corp. are raising investment in overseas resources amid increased competition to secure supplies. “Demand is expected to grow by as much as 5 percent annually, or at a faster pace than steel and copper, as use of aluminum in cars and buildings increases,” said Tomomichi Akuta, research analyst at Mitsubishi UFJ Research & Consulting Co. in Tokyo. “The growth will be led by China, which may represent more than half of the global consumption eventually.” The metal for delivery in three months on the LME fell 0.6 percent to $1,855 a ton at 10:58 a.m. Tokyo time. Alumina is a powder refined from bauxite ore and processed into aluminum. Itochu’s proposed investments would be made by the year ending March 2016 as the company aims to triple its control over alumina refinery capacity to 570,000 tons annually. Of that, 230,000 tons will come from the Worsley project in Western Australia, in which the company has a 5 percent stake, Uede said. Rising Demand “Global aluminum demand is expected to rise by 3 to 4 percent a year on average in the next two decades,” Uede said yesterday. The growth will be led by China and the auto industries in other countries, he added. Itochu is in talks with a number of companies about participation in bauxite and alumina projects in Southeast Asia, Uede said, without elaborating. The company estimates at least $1,000 of investment is necessary for each for each ton of alumina production capacity, he added. Marubeni Corp., a Japanese trading company, said last year it would provide support including logistics and administration to Aluminum Corp. of China Ltd. to build an alumina refinery in Vietnam. The country has 5.4 billion tons of bauxite reserves, the world’s largest after Guinea and Australia, according to a U.S. Geological Survey report published in July. Vietnam National Coal-Mineral Industries Group, the state- owned mining company, may start bauxite production next year, Duong Van Hoa, vice president of Vinacomin, said on Sept. 5 Middle East Itochu plans to ship increased alumina supply to smelters in the Middle East as they expand, Uede said. Currently it supplies alumina to countries including China and South Africa. Middle Eastern countries such as the United Arab Emirates are expanding into businesses including metals and petrochemicals that can benefit from access to cheap fuel. Emirates Aluminium Co., the project to build the world’s biggest smelter, is on schedule to produce its first metal next April, Chief Executive Officer Duncan Hedditch said May 11. Dubai Aluminium Co., the largest smelter in the Middle East, and Mubadala Development Co., the Abu Dhabi state-run investment vehicle, are partners in the Emal project. Itochu imports aluminum produced by Dubai Aluminum for sales in Japan. Itochu currently has minority stakes in two overseas refineries for 190,000 tons of alumina a year. Worsley accounts for 175,000 tons and the rest is from Alunorte in Brazil. BHP Billiton Ltd., the world’s largest mining company, approved a $1.9 billion expansion of the Worsley project last year, boosting capacity from 3.5 million tons a year to 4.6 million tons. The expansion is expected to be completed in 2011, Uede said. Worsley is owned 86 percent by BHP, 10 percent by Japan Alumina Associates Ltd. and 4 percent by Sojitz Alumina Pty. Japan Alumina is equally owned by Itochu and Sojitz Corp., a Tokyo-based trading company.