China aluminum smelter in talks to sell to Alcoa

U.S. aluminum giant Alcoa Inc is in talks to buy its first smelter in China, marking a rare foreign incursion into the world's biggest aluminum sector as hopes fade for its joint venture with Chalco, the top Chinese producer of the metal.

The move suggests Alcoa is determined to build a market position in China's aluminum smelting sector, with or without Aluminum Corp of China Ltd (Chalco).

Talks to buy into and expand the smelter in Panzhihua in southwestern Sichuan province moved forward when senior Alcoa executives visited last week. Alcoa had first approached the parent of Ming Zhu Aluminium to buy the smelter in 2003.

Alcoa would invest in a hydropower plant and expand the capacity of the smelter to 200,000-300,000 tonnes in an investment that would cost well over 1 billion yuan ($146.6 million).

Alcoa had been stymied in efforts to invest in an alumina and aluminum joint venture with Chalco, and last year sold off its 7 percent stake in that company.

However, the two did partner in buying a share of Rio Tinto, the world's largest aluminum producer after it took over Alcan, to try and block a takeover by BHP Billiton.

"The stake sale gave an option to Alcoa to look for alternative ways to build market position in China."

The target smelter is designed to have 100,000 tonnes of annual aluminum smelting capacity, but so far has installed production pots only for 10,000 tonnes due to lack of funds from its parent, a Guangzhou-based air conditioner manufacturer, investment officials for the Panzhihua government said.

"The total investment for the smelter was planned for 1.1 billion yuan," a director at the Panzhihua government's investment office said. "But the company so far has injected only about 200 million yuan."

The smelter enjoys preferential fees for hydropower, but will lose that benefit if it does not reach its designed capacity of 100,000 tonnes, he said.

Alcoa had offered about 100 million yuan to buy the smelter last year, but had been rejected, said another investment official of the Panzhihua government.

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