Alcoa in Profile: China
With China’s aluminum consumption expected to grow more than 10% annually over the next three years, Alcoa has more than US$1 billion in short-term investments planned for the economically booming country, an amount that will help triple annual revenues to around US$2.7 billion by 2010 and rank Alcoa as one of the country’s ten largest foreign investors.
Alcoa first entered the country through a technology relationship with China Non-ferrous Corporation in the 1980s. In 1993, Alcoa Asia set up a sales office in Beijing. Today, Alcoa has nine wholly owned and joint venture operating companies in China that produce foil, fasteners, automotive products, construction products, and decorative sheet. One of Alcoa’s seven manufacturing facilities in the country—the Qinhuangdao location—is the biggest foil producer and exporter in China.
| By the Numbers: Alcoa in China |
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7 production facilities
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8 administrative and sales offices, including the headquarters for Alcoa Asia
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2,200 direct jobs
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1,500 indirect jobs
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83,000 metric tons of product produced annually
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China is second only to the United States in aluminum consumption. In 2004, the country imported more metal than it exported yet still did not have enough aluminum to meetdemand.
“We occupy only a very small part of the market in China, but it’s an area where there is major growth in demand for our products,” said Lloyd Jones, president of Alcoa Asia. “We have an opportunity to capture new business, basically driven by internal growth in China itself and, to a lesser extent, through the export of low-cost products. Currently, most of our US$870 million in annual revenues is from imports of highly manufactured goods like aerospace and can sheet and commodities like metal and alumina. While we intend to keep our focus on imported goods—even recently expanding our sales group—we also need to have additional production capacity within the country.”
Capturing the Opportunities
In the short term, this means capturing the large opportunities Alcoa Asia has been working on. One deal is obtaining majority ownership and subsequently expanding the Bohai aluminum plant. Currently a 60,000 metric-tons-per-year (mtpy) caster-based foil plant, Bohai is slated to transform into a 240,000 mtpy hot-mill plant that will produce sheet and plate. The acquisition and complete transition of the hot-mill is scheduled to be completed in 2009.
“We subsequently will focus on value-added products at Bohai, such as lithographic sheet and brazing sheet,” said Jones. “We also would be seeking to expand our hot mill capacity, either through partnerships or further acquisitions and construction. We see China as a world factory for these products, and our aim is for a minimum 15% market share.”
Together with Primary Metals, Alcoa Asia is reviewing other smelter opportunities to see how they stand up against similar opportunities worldwide.
“We would need several smelters in China to get to our growth target but would invest in these only if they were competitive with other global opportunities,” said Jones. “We also see attractive growth in foil products, and we recently purchased our partner’s share of Alcoa (Shanghai) Aluminum Products Ltd. As with our metal acquisitions, we will focus on the more complex and higher-value products, such as pharmaceutical packaging, aseptic packaging, and light-gauge products.”
Other Alcoa businesses recently establishing roots in China include the pioneering Alcoa Fastening Systems and AFL Automotive.
“We hope to rapidly set up other manufacturing businesses wherever we can be competitive in China, and we’ve created an infrastructure to support all businesses in the country,” said Jones. “We can also leverage Alcoa’s global systems and knowledge, which is a terrific advantage for us in China.”
Meeting the Challenges
Rapid growth does present challenges. The biggest challenge is forecasting and capitalizing on markets with high rates of growth. Second is understanding that products in China will quickly commoditize, requiring Alcoa facilities to maintain a low-cost base from the beginning and be prepared to innovate. The recent establishment of a technical center in Beijing will help that process.
“We also must understand the differences that exist in the government, economy, and culture in China and ensure that Chinese nationals become leaders as quickly as possible,” said Jones. “We’re currently employing many talented Chinese graduates and engineers and putting them on fast-track development for future roles.”
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