Aluminum Demand to Rise 5.3% a Year, Output Increase Needed, Rio Projects

Aluminum producers will have to expand global output by about two-thirds to keep pace with an expected consumption increase of 5.3 percent a year over the next decade, an executive at Rio Tinto Group’s Alcan unit said.

Unless new smelters are built by 2020, demand for the metal used in car parts and airplanes will outstrip supply by 27 million metric tons a year, Amir Mirchi, vice president of business development for the Middle East and North Africa at Rio Tinto Alcan, said, citing company forecasts. Global aluminum production and consumption this year will probably rise to about 40 million tons, he said.

“Growth has resumed, and the trend is very solid,” Mirchi said at a conference in Montreal today organized by the Quebec Manufacturers and Exporters group. “Experience has shown us that when demand is there, production will be there. Someone somewhere will build new capacity.”

HSBC Holdings Plc said in a note dated Oct 18 that it is now turning positive on the metal after being bearish for two years as it sees “tangible signs of impending market tightness.” The bank sees a deficit in supply in 2012 and 2013.

Alcoa Inc., the largest U.S. aluminum producer, expects demand to grow at 6 percent a year in the next decade, Alan Cransberg, managing director of the company’s Australian unit, told a forum in Perth Oct. 18. Citing higher demand from China, Brazil, Russia and India, Alcoa said earlier this month that global consumption will climb by 13 percent this year.

Aluminum makers globally are shifting production to developing countries as energy costs, which represent about one- third of the cost of making the metal, climb in developed nations, Mirchi said. China, which produced less than 1 million tons of aluminum in 2000, now makes more than 15 million tons annually, he said.

Part of the increase in global aluminum output may come from a doubling of production at Oman’s Sohar smelter through the addition of a second potline, Mirchi said. Rio owns 20 percent of Sohar, which produces more than 370,000 tons of the metal annually.

“In Oman we have completed phase 1, and we have a goal to get to more than 800,000 tons,” Mirchi said. Expansion “is currently being considered by the joint venture partners,” he said, without saying when a decision will be made.

Besides Rio, investors in Sohar include Abu Dhabi National Energy Co. and Oman Oil Co.

Rio is also considering whether to build a smelter in Algeria, Mirchi said in an interview after his speech. He declined to say when a decision would be made.

“We are working with the Algerian government, and we are still at the exploratory stage,” he said.