Chalco Expects China to Be An Aluminum Importer

China, the world's largest producer of aluminum, is on course to become a net importer of the metal for the first time since 2001 because of surging demand from automakers and packaging producers.

"For China as a whole to turn from a net exporter of aluminum to a net importer is entirely possible, it's only a matter of time," Xiao Yaqing, chairman of the Aluminum Corp. of China Ltd., the country's largest producer, said in an interview today in Hong Kong. He didn't give a timeframe for the reversal.

Increased demand will lift prices of aluminum, which have lagged behind other base metals in London in the past five years, rising less than half as much as copper and nickel. That would support Rio Tinto Group and Chalco's strategy of expanding and curb profit at users such as China Vanke Co. and Qingdao Haier Co.

"There will be a strong boost to global aluminum prices," said Wang Feihong, chief analyst at Beijing Antaike Information Development Co. He projects China will become a net importer of aluminum as early as 2009.

A reversal in China's aluminum market may follow a similar path to oil, where the nation's imports have more than doubled since 2001, contributing to a fourfold gain in crude prices since.

China, also the biggest consumer of aluminum, encouraged imports by changing tax rates last month to curb output growth and save energy, which accounts for a third of the cost of making the metal. The government wants to reserve resources such as bauxite by urging imports. Bauxite is used to make alumina, which is refined to make aluminum.

Aluminum Corp., known as Chalco, rose for a fourth day in Hong Kong trading, gaining 1.8 percent to HK$15.82 at 11:25 a.m. local time. The company is on course for a record four-day gain of 47 percent since Aug. 17.

Growing Demand

Rio, based in London, agreed to pay $38.1 billion to buy Alcan Inc. this year to become the world's largest producer. It expects the Asian nation's demand to rise by 15 percent a year.

Demand for aluminum in China will rise 33 percent this year, triple the rate of global growth, Xiao said. Global aluminum consumption will increase 10 percent this year, up from a forecast of 8.9 percent, Alcan Inc. said July 31.

China's rate of production growth of aluminum slowed in June, when it rose 28 percent from a year earlier, compared with a 38 percent year-on-year growth in April. It produced 5.7 million tons in the first six months, a rise of 35 percent from a year earlier, National Bureau of Statistics data showed July 20.

"Consumption growth is still very strong," Xiao said. "I am very optimistic about growth of the packaging industry as richer Chinese increase consumption of beverages and food."

Aluminum Gains

Aluminum for delivery in three months on the London Metal Exchange rose 0.8 percent to $2,535 a metric ton at 11:37 a.m. Hong Kong time. In Shanghai, aluminum price rose 0.5 percent to 19,410 yuan ($2,559) at the same time.

"China will continue to curb the growth of energy-intensive industries and restrict the start-up of new aluminum smelters," said Wang of Antaike, a research affiliate of the China Nonferrous Metals Industry Association.

Some Chinese aluminum smelters are yet to meet the higher environmental standards on emissions imposed this year, Xiao said, casting doubt on forecast capacity expansions.

"These days people think China will produce everything the world needs, but in reality we don't have the natural and energy resources to support that," Xiao said. "We are already paying a high price to meet domestic demand, not to mention exports. In the long term, China won't be able to support large demand for metals by itself."

Real estate, automobile and packaging industries account for the lion's share of China's aluminum consumption. China's economy grew 11.5 percent in the first half, boosting demand for trucks and cars. The nation's vehicle sales grew 23 percent in the first half, according to the China Association of Automobile Manufacturers.