NEW YORK (Dow Jones)--Alcoa Inc. (AA), the world's largest aluminum company, is considering building a second aluminum smelter in Iceland at a cost of at least $1 billion and could announce a preliminary agreement today with officials from Iceland.
As energy prices rise, the Pittsburgh aluminum maker and its rivals are scouring the world for places to build plants where energy is cheapest. Aluminum smelting is highly energy intensive and demand for aluminum is increasing globally.
Alcoa last week expanded and finalized plans to build a $1.5 billion smelter in Trinidad, where it says natural-gas reserves will provide low-cost power.
The company said it wants to build a second smelter in Iceland by 2010 that would have capacity of 250,000 metric tons a year. "We feel very much at home" in Iceland, said Bernt Reitan, president of Alcoa Global Primary Products, in a statement.
The company plans to launch a feasibility study that could take a year or more to complete. This doesn't guarantee that the smelter will be built in Iceland, Mr. Reitan said.
The company said it would consider operating the smelter using geothermal power, created from steam generated by heat under the earth's surface. Its other smelter in Fjardaal, Iceland, will operate on hydroelectric power when completed in mid-2007.
Alcoa wasn't the first North American aluminum company to capitalize on Iceland's low-cost energy. Century Aluminum Corp., Monterey, Calif., is already operating a smelter in Iceland, which it is doubling in capacity to 220,000 metric tons by the end of 2006. It is considering whether to build a second smelter in the country.
"The market has long been anticipating a shift toward more efficient smelter technology and better energy sourcing," said Chris Olin, a metals analyst at Longbow Research in Cleveland. "It looks like it is finally coming to fruition."
He predicts inefficient smelters will continue closing in coming years in China and the U.S., where power is relatively expensive, while companies continue to plan smelters in emerging markets where energy is cheaper.
Mr. Olin says the world demand for aluminum will outstrip capacity by 300,000 to 400,000 metric tons this year because consumption is increasing at a faster rate than companies can build new smelters or reopen existing ones.
(END) Dow Jones Newswires