Industry Special: Alcoa sticks to its values for financial success

Editor's note: During his visit to Dalian to attend the Summer Davos Forum from Sept 14 to 16, Klaus Kleinfeld, the chairman and CEO of Alcoa, discussed with China Daily the firm's development strategy and his partnership with China.

Q: Alcoa is the world's leading aluminum producer, and was named one of the most sustainable corporations during the World Economic Forum in Davos. Just how do you connect sustainability with doing business in China?

A: At Alcoa, sustainability means being able to earn a license to operate all over the world. We integrate sustainability into our business systems, operating practices, product design, and engineering. Whether it's an Alcoa bauxite mine in the Amazon forest or our smelter in Iceland, we behave as a responsible global citizen, in a consistent manner around the world.

In recognition of Alcoa's contributions, the company has been on the Dow Jones Sustainability Index for 10 consecutive years and the WEF has named it one of the world's most sustainable companies.

In China, we stick to Alcoa values for financial success, environmental excellence, and social responsibilities, in partnership with all the stakeholders in communities we operate.

Q: You earlier expected global aluminum demand this year to go up. What percentage do you think China's aluminum consumption will increase by this year, in terms of the aerospace, home appliance, and consumer goods sectors?

A: Alcoa expects global aluminum demand to grow because of increasing population and urbanization around the world, particularly in China. We've seen many opportunities in China's aerospace, automotive, home appliance, consumer electronics, commercial transportation, and power generation industries.

Aluminum is used extensively in these industries because of its light weight, durability, surface qualities and corrosion resistance and also its infinite recyclability. About 75 percent of all aluminum ever made on this planet is still in use today.

In my meetings with Chinese leaders, I've been told repeatedly that more environmentally sensitive growth is what China is pursuing. And the extensive use of aluminum will certainly help meet this goal. We predict that China's aluminum industry will maintain a strong rate of growth this year, around 15 percent growth in consumption. China is already the world's largest producer and consumer of aluminum and this, as I see it, will last for a long time.

Q: Alcoa plays an active role in helping Chinese counterparts go abroad. What advice do you have for Chinese companies that want to tap into international markets?

A: Alcoa believes it is very important to work with Chinese companies. Our agreement with China Power Investment Corp is a great example. One of my greatest memories is signing a MoU on cooperation with Lu Qizhou, president of CPI, in Washington, DC, when China's President Hu Jintao visited there early this year. Both parties intend to work closely in mining, refining, smelting, fabrication and engineering applications in the global arena.

Yesterday, Lu and I signed a letter of intent (LoI) marking an important step in the evolution of our partnership. The LoI provides a framework for a completed joint venture that is focused on producing high-end fabricated aluminum products in China and can leverage Alcoa and CPI's abilities.

From our experience in conducting business globally for many years, we feel strongly that a trustworthy partner helps tremendously. That's one of the reasons CPI and Alcoa have chosen to work together. We believe this cooperation will become a model for many Chinese companies.

Q: China has stopped all new electrolytic aluminum projects to ease environmental pressures and consolidate the sector. How would you comment on the policy?

A: This new policy, if implemented in its entirety, will significantly help reduce waste, power consumption, and emissions. Alcoa is going to work closely with our partners to support the efforts of the Chinese government on this.

Q: Do you think that rising bauxite prices will affect Alcoa's mining business in the upstream sector?

A: Alcoa is the leader in bauxite and alumina and has an enviable position in the alumina sector. Our new projects in Brazil - the Juruti bauxite mine and expanded Sao Luis refinery - are performing at consistently high levels and our joint venture project in the Middle East with Ma'aden, which when complete will be the world's lowest cost aluminum complex, is also on time and on budget.

Q: The alumina price mechanism is facing challenges from the spot market. Now that iron ore, which has a 40-year tradition of long-term prices, has switched to the spot market this year, do you think alumina will follow suit in the near future?

A: I first visited China in the early 1980s and have since been here numerous times. I personally like the saying, "Yu Shi Ju Jin," from former President Jiang Zeming, meaning "China can grow fast only when it develops in a way that fits change in the world." The world is changing and that calls for change.

To be more specific, the aluminum industry is moving alumina to index pricing because it better reflects the fundamentals of the industry and will result in a fair price, based on real transactions, in a free market.

Currently, about 20 percent of Alcoa's alumina is sold on index basis or spot, and we expect to convert the remaining contracts over the next years.

Q: The US's manufacturing index is expected to continue its downward trend. Does that mean that its aluminum market is shrinking?

A: The US aluminum market is growing but in a much slower pace compared with that of China. Although there is uncertainty in the current economic environment, long-term the prospects for aluminum are bright. The application of aluminum in many industries is growing. Just look at automotive's drive for higher fuel efficiency.

Aluminum's natural advantages - light weight, strong and recyclable -deliver solutions and will play an important role in building a more sustainable global economy. We expect that global aluminum production and consumption will double in the next 15 years and the United States will be part of that growth.

Q: Will Alcoa consider diversifying its business and moving beyond aluminum, to become an international mining company?

A: Alcoa is well positioned in the global aluminum industry. About two-thirds of the energy consumed by Alcoa smelters is clean, renewable hydro power. Alcoa plans to further grow its use of clean energy. When Charles Martin Hall, the founder of Alcoa, created the production method of aluminum 125 years ago, he might've never thought that aluminum would be so deeply related to our daily life, be it aerospace, automotive or packaging. Aluminum truly is a "miracle metal." We see a great future for aluminum and for Alcoa.