Alcoa sees China as linchpin in aluminum market

NEW YORK, March 10 (Reuters) - China has been the linchpin in the global aluminum industry with its sizable production cuts and measures to boost industrial demand, steps that have brought the global market into balance despite a rapid decline in the metal price, Alcoa Inc's CEO said on Tuesday. Speaking to Reuters Global Mining and Steel Summit, CEO Klaus Kleinfeld credited China's massive smelter production cuts of over 20 percent, which turned China into a net importer of the shiny metal, as helping to bring the global aluminum market roughly into balance. He added, however, that the market outside of China is still running a supply overhang of more than a million tonnes, which, if it continues, could pressure Alcoa to cut more capacity at its U.S. smelters, its highest-cost producers. Alcoa has a list of variables to consider before making such a move, including the smelter's cost-curve position and terms of its power contracts. "So the pressure is still on. We'll continue to look at our situation and then decide what to do about it. But it's possible," the CEO said of additional U.S. capacity cuts. With benchmark aluminum prices on the London Metal Exchange sliding from a record high of $3,375 a tonne last July to around $1,300 a tonne currently, the aluminum giant has had to manage its cash position, trimming costs wherever possible. At the same time, China has boosted demand for the metal with its giant economic stimulus package. While some observers have been concerned that China's recent metal purchases have gone straight to inventories, Kleinfeld said that was not the case with aluminum. "Almost none goes to inventories. Almost all goes to real projects. One thing about China's planned economy is that their economic stimulus program has really focused on what I would call 'the shovel-ready projects.'"Despite its rapid response to a deteriorating market, Kleinfeld said China cannot lead the world economy out of its current downturn and puts that role on the United States, whose own economic stimulus package has a smaller allotment for infrastructure and will take much longer to go into effect. Still, China holds attractive prospects for investment opportunities, the aluminum producer's chief said. Though last year it ended an agreement with China's Chinalco to buy a stake in Rio Tinto that will return more than a $1 billion of cash back to Alcoa, Kleinfeld added that the company was still seeking strategic opportunities with Chinese companies, including the state-owned aluminum group. "I believe China has a very bright future. We have some investments in China. But I'm open to looking at other opportunities or the Chinese market or together with Chinese players. We have strengths in our cooperation with Chinalco, but there are also other co-operations that we have in place."Two weeks ago, he said, Alcoa signed a memorandum of understanding with Yunnan provinces for joint ventures involving operations from smelting to fabricating.