Norsk Hydro sets up China alumina trading shop

Norwegian aluminum producer Norsk Hydro has established a bauxite and alumina trading business in China to supply aluminum smelters there, a sign producers have found ways to profit from China's surging output which many say threatens smelters in the rest of the world.

The company created Hydro Aluminum Beijing Ltd in January this year and maintains a small office with five employees, said Simon Storesund, Norsk Hydro senior vice president bauxite and alumina.

"It's important for us to get closer to the Chinese aluminum industry," Storesund said, adding that Chinese overcapacity and exports of cheap metal into Western markets will likely continue. The operation has been profitable so far, he added.

Norsk Hydro is one of the world's largest aluminum makers and also produces bauxite and alumina. Before establishing the entity, Norsk Hydro supplied the Chinese market with 400,000 to 500,000 tonnes a year of alumina. Having the subsidiary enables Norsk Hydro to warehouse supply in China and sell small shipments to companies that lack the financing necessary to import large quantities all at once.

It sold to five to six companies before creating the new business, and now sells to 10 to 12, Storesund said. This year, it plans to ship 600,000 to 700,000 tonnes of alumina to China and increase that to 800,000 tonnes in 2016 and ultimately reach 1 million tonnes, or roughly a fifth of China's total alumina imports.

To be sure, imports are a fraction of total alumina usage in China, which has 17 alumina refineries that have capacity of around 60 million tonnes a year, according to Thomson Reuters data. But the fact that it is still dependant on imports highlights the enormity of China's still-growing smelting industry, which produces around half the world's total aluminum supply of more than 50 million tonnes annually.

Norsk Hydro's move shows this dependence is also an opportunity for companies to profit off China's oversupply, even as it threatens the health of their smelters.