Chalco partly-owned alumina plant starts full run

HONG KONG, June 18 (Reuters) - Guangxi Huayin Aluminum, 33 percent-owned by Aluminum Corp of China Ltd (2600.HK: Quote, Profile, Research) (601600.SS: Quote, Profile, Research), started full operations at a 1.6 million tonne-a-year alumina refinery this month, local government officials said.

Increased output will add pressure on an already weak domestic alumina market, which spurred Chalco to slash spot prices 17 percent this month in its first such reduction since December.

Government officials in Guangxi Autonomous Region said the Huayin capacity was only the first phase of a planned 3.2 million tonnes alumina complex in Debao county in Baise city.

The construction of the second phase, with equal capacity, would depend on shareholders of Huayin, an official at Baise's development and reform office said.

"The second phase is on our agenda. But it is not up to us when the construction will start," the official told Reuters on Wednesday.

An official at Debao's alumina administrative office said the local government wanted construction of the second phase to start as soon as possible to help improve the local economy.

The first phase cost Huayin more than 8.3 billion yuan ($1.21 billion), he said.

Chalco's investor relations manager, Zhang Qing, said the firm had not made a decision on the building of the second phase.

"We will make a decision according to the market situation," Zhang said. Chalco is the world's third-largest alumina producer.

As well as Chalco, Huayin is owned 33 percent by Minmetals Resources Ltd (1208.HK: Quote, Profile, Research) and 34 percent by Guangxi Investment Group Co Ltd, an arm of the Guangxi government in which Chalco's ex-chairman, Guo Shengkun, is a top leader.

Chalco last month started production at a 100-percent owned 440,000-tonne alumina facility in Baise city, and will begin operations at another facility with the same capacity next week, boosting designed alumina capacity at its Pingguo plant to 1.78 million tonnes a year.

Huayin's possible building of the second phase may fuel competition to the Pingguo plant, Daiwa Securities' Geoffrey Cheng said.

"Chalco already has nearly 2 million tonnes of alumina capacity at the Pingguo plant. Is it necessary to build another 1.6 million tonnes of alumina capacity as a competitor to Pingguo?" Cheng said. "And, it does not even own 100 percent of that capacity."

"From the business angle, Chalco should consider whether the extra alumina can be digested by nearby smelters," Cheng said. ($1=6.8818 yuan) (Editing by Michael Urquhart)

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