Alcoa to shift biz focus to China
By Huo Yongzhe (China Business Weekly)
Updated: 2004-03-15 15:02

US-based leading aluminium producer Alcoa is planning to relocate its Asia-Pacific headquarters from Japan to China as part of its efforts to shift its business focus to "where it has more investments."

"We are evaluating it right now, it is possible," said Joseph Muscari, executive vice-president of Alcoa's Latin America and Asia operations.

But he declined to admit the move was meant to be a withdrawal from the Japanese market, adding "it has more to do with where we have more investment."

But ahead of the aggressive plan is regrouping its investments in China into a holding company, with two more giant projects worth billions of US dollars in investments to be launched this year.

The holding company is set to be established this year in Beijing, which will oversee all of its investments in China, including the existing five joint ventures and the two bigger firms to be launched later.

Alain Belda, Chairman and CEO of Alcoa Inc

"China is today and will continue to be a very important market for Alcoa," said Alcoa Inc Chairman and CEO Alain Belda.

Belda was in China last week for a visit in Shanghai and Beijing, where he spoke with business partners and senior government officials.

"Part of our strategy for the long-term is to have a holding company structure, so that we are able to provide various kinds of support and services to our investment here," Muscari said.

Other reasons behind the establishment of the holding company include economic concerns.

"It is also cheaper to have one president and one financial officer," Belda said.

"We are trying to do this as close as possible together. We think it is going to be in this year, and the timing will be close to the timing of the approval of those two projects," said Muscari, when asked about the timing for the launch of the holding firm.

What he refers to by "those two projects" is the company's two long-anticipated joint ventures in Bohai in North China's Hebei Province and Pingguo in South China's Guangxi Zhuang Autonomous Region.

Alcoa is going to take more than 70 per cent of the stakes in the Bohai project, which is going to be a hot rolling facility in China valued at US$250 million starting in 2004. Teamed with CITIC Group, the project will produce about 250,000 metric tons of high value-added flat rolled aluminium products.

With a total investment of US$1.2 billion, Alcoa will form a 50-50 joint venture with Chalco (Aluminium Corporation of China) in the Pingguo project, which involves bauxite mining, an alumina refinery and aluminium smelting operations.

Chalco is the sole alumina producer and the largest producer of primary aluminium in China, and the third largest alumina refiner in the world. Its mining, refining and smelting operations are the largest in the Chinese aluminium industry.

"We will make them both at the same time as soon as we get full approval to move ahead," Muscari said.

Belda said that the Chinese Government has already indicated strong support for these projects, with the Guangxi project approved and the Bohai project to be approved as soon as it is presented.

"We are in a good position," Belda said.

However, the Chinese Government revealed recently that China's economy has showed signs of overheating, with some sectors, including some aluminium sectors, under repeated construction and calls for suspension of new firm launches.

But it is believed to be more related with smaller ventures that have low efficiency and backward technologies.

Thus, the company is being patient with these two projects.

"We think they are both progressing at a good pace right now," Belda said. "Things take time. It takes time everywhere in the world. It is not unique to China. We have been working on a long time (for these two projects)."

Apart from these two giant projects, the company is also planing to team up with Chalco and Guangxi Investment Group to develop hydro and thermal power plants to support its Pingguo joint venture. The anticipated investment in power generation would be US$800 million.

But Alcoa declined to unveil the would-be stake structure in the power plant.

"We are getting closer together to come up with the right structure. It is still premature to define exactly how it is going to look. It will be a different ownership position," Muscari said.

In other markets, the company significantly enlarged its presence, mainly in Europe and the United States, through internal growth, worldwide partnership and major acquisitions.

"It is consistent (in China) with what we have been trying and we have been pursuing for all these years, which is (to) internationalize the company and go supporting our customers and create new markets for aluminium," Belda said.

Talking about plans for new projects, Belda said: "It is normal for us to look for partnership (in China)."

As one of the world's leading producer of primary aluminium, fabricated aluminium and alumina, Alcoa's products and components are used worldwide in aircraft, automobiles, beverage cans, buildings, chemicals, sports and recreation, and a wide variety of industrial and consumer applications.

"China, the world's fastest growing market for aluminium, also offers opportunities for global scale production at competitive costs. Thus it is an important part of Alcoa's global primary production strategy," according to the company's official website.

Alcoa is also a strategic investor in Chalco, with 8 per cent ownership of outstanding share capital, acquired through Chalco's initial public offering and listing on the New York Stock Exchange and the Hong Kong Stock Exchange in December 2001.

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