A raft of companies plan to pour millions of dollars into the alumina industry to steal lucrative business from the Aluminium Corp of China, also known as Chalco, which currently monopolizes the sector.

Company executives and industry analysts said the newcomers are unlikely to immediately undermine the dominance of Chalco as surging demand for the product can absorb the expansion in supply. And the construction of new plants takes at least two years to complete, giving Chalco time to regroup, they said.

Earlier this month, Gansu Liancheng Aluminium and Shanxi Changxin International Trade agreed with Lianyungang to build a 6 billion yuan (US$722.9 million) alumina plant in Lianyuangang in East China's Jiangsu Province.

The first phase of the project will produce 500,000 tons of alumina each year.

In June, Chinese billionaire Liu Yongxing also struck a deal with three other companies to invest 4.5 billion yuan (US$542.2 million) in a million-ton-a-year alumina plant in Central China's Henan Province.

Alumina is the raw material used to produce aluminium. Demand for alumina has grown at double-digit rates in recent years. Chalco controls almost all domestic alumina production.

An official from Chalco denied that the proposed plants would erode its dominance in the short term.

"The alumina industry is profitable. It is only natural for others to move in," said the official, who declined to be identified. "But it will not threaten the sales of Chalco because of the strong market demand."

China has to import nearly 4 million tons of alumina a year, or 30 per cent of its total supplies.

An analyst with a leading metal consultancy who refused to be named agreed that Chalco will not suffer much from potential competition in the short term.

"For one thing, alumina is in short supply. There is a ready market," she said. "And the building of new alumina plants is unlikely to drag down the domestic alumina price, which is level with international market prices.''

However, the analyst said in the long run competition will intensify as companies scramble for scarce alumina ore resources.

Although Chalco has signed agreements with local governments giving it exclusive rights to develop ore resources, local governments are likely to seek more investors to accelerate the development of their alumina resources and feed their aluminium production.

Many central and western regions have planned major expansions of aluminium production capacity, hoping the new plants will stimulate their local economies.

Still, it is not clear whether these projects will win government approval.

Despite local government enthusiasm for aluminium production, the central government has announced it wants to rein in the rapid growth in capacity, fearing a possible market glut. Analysts said the government would prefer to keep firm control over alumina supply to limit the growth in aluminium production.

(China Daily August 18, 2003)