Rio Tinto to expand Yarwun alumina plant

Expansion work at Yarwun alumina refinery will be completed in the second half of 2012 under a revised schedule after delays stemming from the global financial crisis, owner Rio Tinto says.

Rio, which increased its share of the alumina market when it acquired Canada's Alcan in 2007, slowed its plans to immediately lift alumina capacity at the refinery to 3.4 million tonnes a year from 1.4 million at a cost of $2.06 billion as the crisis gutted commodities markets.

China has already reactivated nearly 12 million tonnes of annual alumina-making capacity idled in 2008 at the height of the downturn, Rio said in a separate overview paper on the sector.

A recovery in aluminium prices since the second half of last year – up 50 per cent – had led to the restarts, though outside of China a further nine million tonnes of capacity remains offline, mainly in the Atlantic region, Rio, the world's biggest aluminium producer, said.

World demand for alumina was in near-balance, with an estimated surplus for 2010 of less than one per cent of global production, according to Rio.

"China continues to drive the market, with Chinese alumina demand expected to increase by 22 per cent to 37 million tonnes in 2010, compared with 2009," the company said.

It takes roughly two tonnes of alumina to make a tonne of aluminium.

China is the world's top aluminium-producing nation and last year supplied all but 10 per cent of its own alumina requirements.

Analysts had suggested Rio's board would await the outcome of debate over Australia's proposed 40 per cent profits tax on mining companies before committing to the expansion work at Yarwun.

Rio chief executive Tom Albanese last month described Australia as the company's top sovereign risk because of the tax and that all its investments in the country had been placed under review.

Alumina, used to make aluminium, is traditionally priced annually at between 10-17 per cent of the London Metal Exchange-traded price, currently around $US1,945 （$A2,226.16） a tonne .

Volume agreements can be set for years at a time. Other producers, including BHP Billiton and Alumina Ltd, part owned by Alcoa, have said the LME-linked system no longer reflects alumina production costs and market fundamentals as smelting companies turn more to independent suppliers for alumina.

But Rio said any changes in alumina pricing would have a minimal impact on its business since most of its material is fed directly to its own stable of 26 aluminium smelters.

Rio Tinto shares ended the session 2.17 per cent weaker at $70.54.