Alcan Says Absence of Chinese Power Contracts Curbs Investments

Dec. 15 (Bloomberg) -- Alcan Inc. Chief Executive Officer Dick Evans said an absence of long-term power contracts in China is curbing the company's investment there, even while Chinese demand for aluminum is increasing about 20 percent a year.

``We think over time China is probably not the ideal place to have low-cost primary smelting,'' Evans said yesterday in an interview in Saguenay, Quebec. ``We would be looking for much better visibility on longer-term power contracts, which are not in existence in China today. They are year-to-year contracts.''

Alcan, based in Montreal, doesn't plans to invest in a 250,000 metric-ton-a-year expansion at China's state-owned Qingtongxia Aluminum Group, Evans said. The company paid $150 million for a 50 percent stake in a 150,000 ton production line at Qingtongxia, in western Ningxia autonomous region, in 2004.

About half the electricity used at Alcan plants is supplied by the company's own generators, compared with an industry average of 25 percent. Alcan is targeting 55 percent of its total smelting costs to be in the lowest quartile of world output.

``It's a positive profitable facility today but is a third- quartile facility in world economic terms,'' Evans said of Qingtongxia. ``The capital cost in China is lower but the operating costs are fairly high, and particularly power is high.''

China may account for 34 percent of aluminum consumption by 2010, up from 13 percent in 2000, according to Toronto-based Canaccord analysts Gary Lampard and Orest Wowkodaw.