Transportation sector is helping to support aluminum demand
New F-150 truck and CSeries aircraft cited by Rio Tinto Alcan.
MONTREAL — Increased use of aluminum in vehicles like Ford’s new F-150 pickup truck and in new airplanes is helping to sustain demand for the metal, but high global inventories continue to limit investments in new smelting projects, the head of Rio Tinto Alcan said.
Jacynthe Cote said aluminum demand is pretty strong both in China and the rest of the world, increasing by 5% to 6% annually.
In the US, efforts to halve fuel vehicle consumption by 2025 is helping to bolster the use of light-weight aluminum in the transportation sector.
Ford has unveiled its 2015 F-150 with a body that’s 97% aluminum. The light material shaves up to 315 kilograms from the 2,250-kilogram truck, a move seen as revolutionary for an industry reliant on heavier steel.
Bombardier’s all-new CSeries commercial jet also uses aluminum and composite materials to reduce its weight and boost its fuel efficiency.
These efforts are important but Cote said reducing the 10 million to 11 million tonnes of global inventories of aluminum is required to help increase metal prices before the company can entertain large new spending projects in Quebec and elsewhere.
“The biggest element is to make sure that the supply gets back on track with demand and that means we’ll need to see some more curtailment of the old, high-cost assets outside of China and we’ll we need to see less new plants in China,” she said in an interview following the official inauguration of Rio Tinto Alcan’s new AP60 smelter in Saguenay, Que.
Mining giant Rio Tinto invested US$1.1-billion to build a 60,000-tonne per year plant employing nearly 135 people that produces 40% more aluminum per cell than previous technology. Production started in September and ramped up to full capacity in December.
Rio’s Montreal-based aluminum division is also working to ramp up by November the US$3.3-billion modernization of its smelter in Kitimat, BC.
The investments will make Rio Tinto Alcan more competitive, but Cote said two more expansion phases of the AP60 technology centre and additional investments must wait until the market is more in balance.
Since 2009, Rio Tinto Alcan has closed or curtailed more than 600,000 tonnes of aluminum capacity, including 100,000 tonnes from last fall’s closure of its smelter in Shawinigan, Que. It sold operations in the US, France and curtailed output in Australia. She said the closure of Rio’s main plant in Arvida, Que., can be put off until 2016.
“Our current operations in Quebec continue reducing their costs and this is by far the best way to continue protecting jobs.”
Rio Tinto’s aluminum production increased 7% last year to 3.47 million tonnes compared with 2012 when a lockout in Alma, Que., reduced output. Production increased by two per cent in the fourth quarter compared with the prior year.
The aluminum group reduced more than US$450 million of costs in the first 10 months of 2013 by curtailing production and cutting jobs. By year-end, Rio Tinto had cut more than US$2 billion of operating costs.
Head office and support costs have been cut by 28% since 2011, mainly from a one-third reduction in the number of employees. About 2,400 workers have left the company, including more than 1,700 last year.
Rio Tinto generated US$2.5 billion last year from the sale of non-core businesses, a strategy that has been pursued since Alcan was purchased by Rio Tinto for US$38.1 billion in 2007.
Cote said new investments are also contingent on securing lower electricity prices. Aluminum producers pay the L-commercial rate in Quebec, which Cote said is not competitive enough to induce substantial growth of the sector in the province.
The industry has asked the Quebec government to lower electricity prices, noting that aluminum production is an important driver of the regional and provincial economies and supports thousands of jobs.
In 2006, the prior provincial government provided a $400-million interest-free loan repayable over 30 years and an additional 225 megawatt block of electricity.
© 2014 The Canadian Press