The stock market believes the US aluminium giant Alcoa is ripe for a takeover bid. Rio Tinto and BHP Billiton are being named as the likely predators, but watch out for private equity raiders.

Whether the stories are true or false, whoever contemplates buying Alcoa must come to grips with the fact that the jewel in Alcoa is a joint-venture operation, AWAC (Alcoa World Alumina and Chemicals), where the American company owns only 60 per cent. The Australian listed group Alumina Ltd owns the remaining 40 per cent in what is a most unusual corporate structure.

AWAC is the world's largest combined bauxite miner and alumina producer – the first two steps in making aluminium. Bauxite and alumina production is often more profitable than smelting aluminium and rolling final products. Accordingly, in recent times the market has awarded Alumina Ltd a higher price-earnings ratio than Alcoa and substantially higher than either BHP or Rio Tinto.

While on the surface that makes it hard for Rio and BHP to bid for the Australian company, there may be offsetting factors because AWAC has a unique global opportunity.

AWAC owns eight of the world's largest alumina refineries, of which five are in the bottom cost quartile. Better still, in coming years it will be able to increase the capacity of its existing refining operations by about a third from the 2006 level and, because it is adding to base plant, the operating costs (excluding raw materials) of the new capacity will be some 30 per cent below current levels.

At the same time, Alcoa believes with a passion that despite greenhouse, the world's use of aluminium will double between 2005 and 2020. The Australian CEO of Alumina, John Marlay, is totally convinced that Alcoa's future projections are right and so the Australian company is taking up its entitlement to fund 40 per cent of what is the world's largest alumina production expansion.

Rio Tinto and BHP also produce alumina but have been much more restrained.

Australian savers have retained this amazing asset – Alumina – to boost their retirement returns thanks to the long-term strategic investment policies of the late Lindsay Clark, Avi Parbo and Hugh Morgan.

Morgan had to fight the short-term institutional analysts who did not understand how to value the old WMC company correctly, which almost led to Alcoa buying WMC at a price that was nearly as low as the French bid for Axa and the Xstrata takeover of MIM.

The attempt by the Americans to take advantage of Australia's poorly trained analysts forced the board of WMC to split the company into two. BHP later bought the uranium, copper and nickel business at what still turned out to be a low price. But it will be much harder to secure Alumina cheaply because there are now at least a few institutional analysts who have taken the time to understand the company's potential.

Aluminium has been described as "solid electricity" – so why, in a greenhouse/carbon emissions-obsessed world would consumption of aluminium double between 2005 and 2020?

John Marlay believes that aluminium, rather being part of the problem, is "part of the solution". He says that its light weight substantially improves the fuel consumption in the transportation industry and it is a brilliant building and packaging material.

"I think that it is important to realise the embedded energy which is stored within aluminium," he says.

"In 2007 the world will consume about 36 million tonnes of aluminium. One-third of that consumption is actually from recycled aluminium requiring 95 per cent less energy than the first time that it was manufactured as primary metal.

"Over 60 per cent of the aluminium ever produced in the world over the last 80 years is still in use.

"In construction materials you are getting close to 100 per cent recycling. In the automotive sector, it is 90 per cent recycling, and in packaging, depending on the particular economy, it is between 50 and 60 per cent."

Marlay says that the vast majority of new aluminium will come from gas-fired power stations in the Middle East and Russia plus hydro in places like Iceland (Alcoa) and possibly Greenland.

The bulk of AWAC's alumina production is fired by natural gas, which generates processed steam. The group is planning co-generation plants in Australia and elsewhere to use that steam to generate power which will substantially improve its carbon economics. It also owns the two Alcoa aluminium smelters in Australia, in Geelong and Portland, which gain most of their electricity from brown coal.

Any group bidding for Alcoa or Alumina will need to be confident that any future legislation taxing carbon emissions (perhaps via trading) will not stunt the growth of aluminium and leave the world with substantial over-capacity in both aluminium and alumina. China is, of course, leading the demand for aluminium. The country is planning much more investment in dwellings and cars which will propel future demand. The Chinese alumina company, Chalco, is estimated to produce between 9 million and 10 million tonnes of alumina, compared to 14.3 million tonnes by AWAC.