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National Aluminium, India’s second-biggest producer of the metal, will start construction of its $4 billion joint-venture smelter and coal-fired power plant in Indonesia by June, to extend its reach into Southeast Asia.

The East Kalimantan project will be built over three to four years, chairman A.K. Srivastava said on Thursday in an interview in Mumbai. It will include a plant with capacity of 500,000 metric tons and a 1,250-megawatt power generation facility, he said.

Aluminum prices have rallied 60 percent in the past year as stimulus spending by the Chinese government spurred demand from automakers and builders. United Co. Rusal, the world’s biggest producer, said this week it would increase output having seen the first signs of a recovery in demand.

“The [Kalimantan] project will help the company source cheaper coal for its power plant which will reduce their costs and will also give them access to new markets for the metal,” said Sumeet Singhania, assistant vice president at Antique Stock Broking, putting a “hold” rating on National Aluminium.

“We are hoping to sell part of the output in Indonesia and export the rest to neighboring countries,” Srivastava said. The Bhubaneswar-based company, which will produce 2.1 million tons of alumina in fiscal 2011, plans to export about half of its output to Indonesia to feed the smelter.

National Aluminium also plans to raise bauxite output about 41 percent to 8.9 million tons in the next four years, from an expected production of 6.3 million tons this fiscal year, Srivastava said. Bauxite is a raw material used to make alumina, which is then used to produce aluminum.

RAK Minerals & Metals Investments, a unit of United Arab Emirates sovereign wealth fund RAK Investment Authority, holds 24 percent of the Indonesian venture..

Indonesia, the world’s fourth-most populous nation, may see a spurt in aluminum demand on orders from carmakers and builders, Effendi Sirait, head of state agency Otorita Asahan that supervises PT Indonesia Asahan Aluminium’s project, said on Dec. 21. The company operates the nation’s only aluminum smelter.

Global demand for aluminum may rise 5 percent this year, driven by China, National Aluminium’s A.K. Sharma, director of production, also said on Friday in an interview in Mumbai.

“Demand is there, it’s increasing,” Sharma said. “Mostly it will come from growth which is taking place in China.” The return of demand from the transport and building industries in the U.S. and Japan may help bolster consumption, he said.

The company expects higher profit from its aluminum business as average prices may exceed $2,100 a ton this year, Srivastava said. Cash prices on the London Metal Exchange averaged $1,671 a ton in 2009.

The Indian metal producer is planning to raise aluminum output to 460,000 tons in the fiscal year ending March 31, 2011 from about 420,000 tons this year.

National Aluminium shares rose as much as 2.1 percent to 383 rupees ($8.30), and traded at 376.9 rupees as of 12:14 p.m. in Mumbai.



Bloomberg