Alcoa in home stretch of 5-year portfolio review: CEO | Hotter Commodities

Alcoa is into the home stretch of its five-year portfolio review, which draws to a close in October, the chief executive officer of the US aluminium producer told Fastmarkets

Speaking in an interview on Thursday, January 18, William Oplinger said that Alcoa had executed on a sizable portion of the review and was focused on driving operational excellence as well as cutting costs in order to remain competitive.

This week, the company announced a cost-cutting objective of $100 million, a move Oplinger noted is designed to refocus Alcoa to a competitive mindset that will significantly improve its overall financial performance but also keep it viable and sustainable.

The productivity and cost-cutting objective is expected to be achieved by the first quarter of 2025.

The evaluation of Alcoa’s portfolio dates to October 2019, when the company placed 1.5 million tonnes of smelting capacity and 4 million tonnes of alumina refining capacity under review.

In 2019, Alcoa produced 2.1 million tonnes of aluminium, 13.3 million tonnes of alumina and 47.4 million tonnes of bauxite.

The review, which will end in October 2024, has since been considering opportunities for significant improvement, potential curtailments, closures or divestitures.

“At this point, I would consider individual asset sales for some of the marginal assets,” Oplinger said.

“However, I think we’re really good operators, and this has been shown over the years — it’s hard for a buyer to come up with a business plan that says that they can run our facilities better than we can,” he added.

“Therefore, we’ve not done a whole lot of asset sales in the past. So, if there’s a buyer out there that shows that they can create significant value for the stakeholders, but also for Alcoa, we will consider it,” he told Fastmarkets.

Alcoa produced 2.1 million tonnes of aluminium in 2023, along with 41 million tonnes of bauxite and 10.9 million tonnes of alumina.

As of December 31, its 11 aluminium smelters had total capacity of 2.64 million tonnes, of which 465,000 tonnes is curtailed. This excludes its 202,000-tonnes-per-year, joint-venture smelter in Saudi Arabia.

Meanwhile, its six alumina refineries had total capacity of 13.8 million tonnes, of which 1.45 million tonnes is curtailed – also excluding its 454,000-tonnes-per-year, joint-venture refinery in Saudi Arabia.

Oplinger said the company had made good progress in the fourth quarter and executed at a relatively fast pace. This included the resolution of a key bauxite permitting issue in Australia, the ongoing restart of the Alumar smelter in Brazil, and the restart of additional smelting capacity at the Warrick smelter in the US state of Indiana.

The company has yet to resolve “unsustainable business conditions” at the San Ciprián alumina refinery and aluminium smelter in Spain, with Oplinger warning that funding for the complex would dry up in the second half of the year if the situation continued.

Energy & Elysis

Oplinger said that while energy costs in the United States had the potential to make operating there challenging, it remained a viable option for smelting.

“We still have two plants in the US that are viable – one [Massena in New York state] is based on sustainable energy with a very good energy contract, and a good workforce. The other [Warrick] is in Indiana, and it is currently powered by coal. We will work to transition that to a more sustainable energy source,” Oplinger told Fastmarkets.

The company will use its groundbreaking Elysis technology when it builds new smelters, with the criteria of a low-cost, sustainable energy source and a good workforce central to decisions on where to locate new plants.

The Elysis technology, a joint venture with Rio Tinto, eliminates all direct greenhouse gases from the aluminium smelting process, instead producing oxygen.

“The US could be there – the US is maybe not there today, but in the future, especially with some of the Inflation Reduction Act spending that’s occurring today, the US could be there — so don’t write off the US as a primary aluminum producer yet,” Oplinger said.

Russia

Oplinger reiterated his view that London Metal Exchange prices are diverging from the underlying physical market due to the dominance of Russian aluminium in LME warehouses and the restrictions on trading it due to the war in Ukraine.

The solution, he told Fastmarkets, is sanctions by the EU and the US.

“Today, 90% of the inventory sitting in the LME is Russia-origin metal. If you want to buy non-Russia-origin metal out of the LME, you have to buy the entirety of the inventory and sift through the warrants to get non-Russian metal,” he said.

“The LME [aluminium price] is based on a product that people don’t want; this is a discussion that we have had with the LME, and they acknowledge it,” he noted.

“That’s a difficult situation for the LME, and it’s a difficult situation for the producers. The LME needs to understand that their relevancy is significantly impacted by this,” he added.

The LME has adopted the view that it will follow the lead of international governments when it comes to sanctions. Oplinger said that Alcoa and its peers are lobbying governmental agencies individually as well as through European Aluminium.

“But ultimately, I won’t give up on the exchange. The exchange needs to understand that their credibility, their relevancy, is being negatively impacted by tying aluminium pricing to a product that consumers don’t want,” he said.

In Hotter Commodities, special correspondent Andrea Hotter covers some of the biggest stories impacting the natural resources sector. Sign up today to receive Andrea’s content as it is published.

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