Outdated smelting and refining technology and limited access to bauxite, aluminum's raw material, will prevent China from making more aluminum than it can use, said Bernt Reitan, president of Alcoa's global primary products group.
"China has been a net importer of aluminum metal for the past seven years," he said in a conference call with analysts and reporters. "We believe China will continue to be short on aluminum."
Strong growth in China's production of aluminum and alumina, an intermediate material from which aluminum is smelted, has not caught up to domestic demand, Reitan said.
China has also seen a sharp upturn in imports of high-cost bauxite, mainly from Indonesia, and the country has been forced to import alumina in significant quantities over the past five years, Reitan said.
Alumina imports are projected to hit 7 million metric tons this year, but will drop to 3.14 million metric tons in 2007 and 2.81 million metric tons in 2008 as the nation tries to reduce its dependence on imported alumina, he said.
Reitan said Alcoa is well-positioned to take advantage of "the most attractive upstream opportunities in the industry," which has inventories at all-time lows. The aluminum industry is healthy and continues to grow, Reitan added.
Alcoa spokesman Kevin Lowery said the company held the conference call to offer its perspective on recent growth in the Chinese market.
"We're saying that the metal piece of the market is going to remain very tight, that the aluminum market will remain tight, which means that demand is strong," Lowery said.
Morgan Stanley analyst Mark Liinamaa said it was no secret China has been increasing alumina production, and many industry observers assumed a greater amount of aluminum would flow out of China as a result.
"To some degree, what we're seeing in aluminum is similar to what we're seeing in steel," he said. "They've rapidly ramped up their capability, scared the global market a little bit."
The government is actively taking steps in both of those segments "to curtail growth that they don't necessarily see as being beneficial for the economy at large," he said.
Alcoa's call with analysts and reporters comes less than a week after the company announced plans to cut 6,700 jobs as part of a restructuring of its downstream operations to improve profits and efficiency.
The Pittsburgh-based company also said it had agreed to join its soft alloy extrusion business with the Sapa Group, part of Norway's Orkla ASA, in a joint venture that would eventually be taken public. The new company, which will be majority owned by Orkla and operated by Sapa, is expected to be created by the end of the first quarter, pending government approval.
The bulk of the layoffs - 4,800 jobs - will be in Alcoa's automotive and light vehicle wire harness and component operations, according to the company.
