China's Alumina Production Growth Good for Alcan

China's alumina and aluminium production for the first two months of 2007 fell short of the market's growing "bearish" forecasts and Desjardins' John Redstone says the results signal good news for Canada's aluminium giant Alcan Inc. .

According to the National Bureau of Statistics, January-February alumina production in China increased 47.1% from the previous year to 2,614,500 tonnes, or 16,200 KMT (thousand million tonnes) per year on an annualized basis.

Sharp growth indeed, but in a research note, Mr. Redstone says this number is well short of the forecast of the market "bears."

The same goes for China's aluminium production. Despite growing 35% from the previous year to 1,797,400 tonnes, or 11,100 KMT per year when annualized, it lags pessimistic predictions that have production pegged between 13,000 and 14,000 KMT in 2008.

Mr. Redstone's forecast is 11,000 KMT in 2007 and 11,600 KMT in 2008. Meanwhile, net exports on primary metal and alloy are declining and China has become a net importer. That's positive news for the aluminium market, he says.

Alcan is Mr. Redstone's top choice to take advantage of the strengthening market and maintains a "top pick" rating on the stock. His price target remains unchanged at US$75, which represents upside of roughly 30%.

Alcan has been at the center of persistent merger rumors for weeks and its shares have jumped 25% in the last six months. CEO Dick Evans, who earlier this week said he wants Alcan to go it alone and he will oppose all merger attempts, said in February that China's demand for aluminum would more than double in the next five to ten years.

Mr. Redstone maintained a "buy" rating on Alcan competitor Alcoa Inc. (AA), which is also frequent rumored to be a takeover target.