China Auto Industry Growth Spurs Aluminum Plant Investment

HONG KONG, July 13, 2003; Reuters reported that Hong Kong's Asia Aluminum Holdings Ltd, the largest aluminum extruder in Asia, said on Sunday it would invest in a HK$3 billion (US$384 million) aluminum panel plant to be built in southern China.

Asia Aluminum forecast the project would take advantage of an expected surge in demand from China's automaking industry and would triple the company's revenue and earnings in about three years.

Chief Executive Officer Benby Chan told a news briefing that the project, in which the company will hold a 60 percent stake, could boost the firm's revenue and earnings by 200 percent in the 2005/06 fiscal year from the last fiscal year.

The company reported net profit of HK$131 million on turnover of HK$1.97 billion in the year ended June 30 2002, versus earnings of HK$195 million on turnover of HK$2.06 billion the previous year. The profit fall was largely due to a one-off charge from the setting up of two joint ventures.

The aluminum panel project, located in southern China's Guangdong province, would start operations in 2005 and have a full capacity of 400,000 tonnes by 2007, said Asia Aluminum, which already has five plants in Guangdong with an annual capacity of 140,000 tonnes.

China, the fastest growing major economy, consumes 1.1 million tonnes of aluminum panels per year, mainly for use in automobiles, buildings, infrastructure, packaging and aviation industries. Chinese GDP is forecast to grow 7.5 percent in 2003.

But China relies largely on imports of aluminum panels, priced at between 20,000-30,000 yuan (US$2,416-$3,624) per tonne depending on the grade, according to Asia Aluminum.

"The Chinese market is short of high-grade aluminum panels, so we hope to satisfy the demand," said Company Chairman Kwong Wui Chun, who will own 20 percent of the project.

"I feel the future demand from China's automobile industry will be huge," he said, adding that 60 percent of the project's products will be sold domestically and the rest exported.

Shares of the company last traded at HK$1.11 on Friday, up 30 percent in the past month.

Asia Aluminum said the remaining 20 percent stake in the project, to be located in the city of Zhaoqing, would be evenly split between a raw material supplier and a distributor. But Asia Aluminum declined to identify the partners.

Asia Aluminum, which has net cash of about HK$850 million, said 40 percent of the planned HK$3 billion investment in the project would be funded from equity injections, while the remaining 60 percent would come from Chinese bank loans in the form of project financing.

Kwong said the actual total investment in the project could reach HK$3.5 billion as the company was still bargaining with foreign equipment suppliers.