The Chinese factor continues to be a strategic driving force for corporate activity in the resources sector, the latest being Rio Tinto's US$44bn friendly bid for Canadian aluminium giant Alcan.

In his presentation on the deal, Rio Tinto CEO Tom Albanese highlighted China's rising demand for the metal and said there was plenty more to come.

Aluminium has one of the fastest-growing demand profiles of any base metal and the market has grown by 7,7%/year over the past four years.

China's consumption of global aluminium production has risen from around 4% in 1990 to around 26% last year, but the country's consumption per capita is low compared with that of developed economies such as Japan and the US. Demand in China is expected to rise sharply as its economy develops, broadening the need for the metal, which is used in applications ranging from cars to construction, consumer packaging and consumer goods.

That is good news for SA because it underscores the importance for Rio Tinto of Alcan's proposed aluminium smelter at Coega, near Port Elizabeth.

There has been some speculation over the past two years that Rio Tinto was considering reducing its exposure to SA. Rio Tinto has traditionally kept a low profile in this country, where its main assets are its 50% stake in titanium producer Richards Bay Minerals (RBM) and a 57% holding in copper producer Palabora Mining (Palamin). The specific suggestion was that Rio Tinto wanted out of Palamin because it considered the mine no longer good enough to be classified a "core" asset.

Rio Tinto denied that and said it was negotiating an empowerment deal for Palamin, as it is also doing at RBM.

Factors indicating greater involvement include the exploration work to establish the Chapudi coal project in Limpopo. Furthermore, Rio Tinto is also believed to be the leading contender to buy the Cullinan diamond mine near Pretoria, which has been put up for sale by De Beers. Rio Tinto declines to comment on that.

Alcan spokesman Robert Valdmanis says Rio Tinto has emphasised that one of the big attractions of Alcan is its advanced project pipeline. "The Coega projects sits at the head of that pipeline and we have been assured by Rio Tinto that it wants to fund it and move it forward, so it's business as usual at Coega. Last week's signing of the EPCM contract shows our commitment," he says.

The EPCM (engineering, procurement and construction management) contract is worth $100m. A joint venture consisting of SNC-Lavalin, Hatch and Murray & Roberts has been signed up for the engineering design and management of the first phase of the smelter.

Coega's first phase is planned to produce 360 000 t/year of aluminium and the proposed second phase would increase this to 720 000 t/year. The total cost for both phases is estimated at $2,7bn.

The Industrial Development Corp will take a 15% stake in the project and 5% has been reserved for black economic empowerment partners. Alcan signed a long-term contract with Eskom last November for the power supply to the smelter and phase one is expected to come into production during 2010.

Rio Tinto's move is seen by some analysts as putting pressure on rival resources giant BHP Billiton to take action to maintain its position in the aluminium business. Assuming the Rio Tinto/Alcan takeover goes through as planned, it will create the world's largest aluminium producer, overtaking Russia's Rusal.

Had the deal been effective last year joint aluminium production by Rio Tinto and Alcan of just under 4,3 Mt last year would have been about 10% up on Rusal's 2006 output. BHP Billiton's production was a mere 1,3 Mt.

According to London's Financial Times, BHP Billiton has asked investment banks Merrill Lynch and JP Morgan to "weigh up the merits of making a bid for Alcoa". A BHP Billiton representative says the group never comments on such market speculation.

Alcoa is the largest aluminium group in the US with 2006 production of 3,7 Mt and launched a $27,5bn bid for Alcan in May. Alcoa's cash and share bid valued Alcan at $74,60/ share but was blown away by Rio Tinto's offer, which works out to an all-cash bid worth $101/ Alcan share. Alcoa has since withdrawn its offer for Alcan.

BHP Billiton will remain the largest mining company by market cap, even without Alcoa on board.