Alumina prices seen benefiting CVRD investments

Investments by Rio de Janeiro-based CVRD (NYSE: RIO) in expanding alumina output will benefit from high market prices forecast to continue in the short term, company CFO Fabio Barbosa told analysts. "High aluminum prices favor producers," he said. According to CVRD's sources, spot prices for alumina shot up from around US$150/t FOB at the start of the year to around US$300/t FOB currently. "The high spot prices are starting to pressure contract prices upward," said Barbosa. High alumina prices, forecast to remain high due to Chinese demand, will improve returns on expansion projects at CVRD's alumina subsidiary Alunorte, he said. In September, Alunorte, in Bacarena, in the northern Brazilian state of Para, began a US$583mn project to expand capacity by 1.8Mt/y. The brownfield project involves the construction of stages four and five of the plant, bringing its annual capacity to 4.2Mt. The estimated cost of the expansion is US$324/t and should be completed in 2006. A previous expansion completed in March brought on line additional capacity of 825,000t/y. The subsidiary also has plans to up capacity by another 1.8Mt/y in 2009 as well as an Alunorte II project of 1.8Mt for 2015. A US$271Mt greenfield bauxite project Paragominas, also in Para, is slated for completion in 2006. The mine will have a 4.5Mt/y capacity and cost US$60.22/t. "Alunorte will substitute bauxite from MRN, in which CVRD only has a stake, with Paragominas, which is wholly owned by CVRD as the latter comes on line," Barbosa said. CVRD also has plans to boost bauxite capacity at Paragominas by 4.5Mt/y in 2009 and by another 4.5Mt/y in 2015. ALUMINUM Global economic recovery is also benefiting aluminum. Although stocks remain high at over 400,000t, the 3-month contract price of the white metal has climbed to above US$1500/t on the London Metals Exchange. Three months ago, prices were hovering above US$1400/t. CVRD's wholly owned aluminum subsidiary Albras will finish 2003 with a capacity of 430,000t and will reach a capacity of 450,000t in 2004. Rio de Janeiro-based CVRD is the world's largest producer and exporter of iron ore and has diverse mining, logistics and metals assets.