UPDATE 1-Alcoa Sees Aluminium Inventories Rising

OSLO, June 23 -- Alcoa (AA.N), the world's biggest aluminium producer, said inventories of the light metal would continue an ascent to record highs and that it was mulling investment opportunities in thermal and hydropower-rich Iceland.

Executive Vice President Bernt Reitan told Reuters that London Metals Exchange inventories have stood steady at around 4.5 million tonnes for much of the past year and were bound to rise as production outweighs demand over the near term.

"Of course they will continue to rise. We have curtailed 20 to 25 percent of our production for that very reason," he said on the sidelines of a CRU aluminium conference on Tuesday.

"There are a lot of inventories, but some are tied up in deals, so how much is available we really don't know," Reitan said, referring to collateral deals, which have prevented much of the inventories from coming on the market and have kept up prices.

He also said Alcoa's Fjardaal smelter in Iceland had been a a success and that the company might consider other investment on the island, which has been hit by a deep economic crisis.

"There are other opportunities to do there, but of course the economic crisis that hit the world is naturally slowing down some of the growth activities," Reitan said. "But we continue to be very excited about Iceland."

The Chinese authorities shifted currency policy last weekend to allow some appreciation in the yuan, which analysts say could pressure already high-cost aluminium producers in China, the world's biggest market for the metal.

"If the (yuan) currency strengthens, it will make it harder for them to export, but I want to see it before it happens," Reitan said.

"It's hard to predict that there will be a significant change if you look at their (China's) historic behaviour."