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March 4, 2008
Alcoa goes local for sustainable growth
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Editor’s note: Alcoa, the global leader of aluminum production, has invested over $700 million in China and set up 17 local operations since 1993. In the process of setting up local plants, Alcoa has contributed to China’s overall economic progress, to the country’s environmental protection campaign and to community development. As China celebrates the 30th anniversary of its opening up, the US-headquartered aluminum producer shares its development experiences and achievements in China and its future plans. Chen Jinya, Alcoa’s Asia-Pacific president, spoke to China Daily reporter Wang Yu.
Q: Alcoa and Chalco have acquired 12 percent of global miner Rio Tinto. How will Alcoa benefit from this cooperation with its Chinese counterpart? Can we expect more commercial partnerships between Alcoa and Chalco?
A: As our chairman, Mr Belda, indicated: “This investment, made in partnership with Chalco, allows us to mutually benefit from developments in the sector. Alcoa has known Chalco for many years, dating back to our participation in the successful launch of Chalco’s IPO, and is looking forward to this new venture.” Chalco and Alcoa are two world-leading companies in the aluminum industry. We have many reasons to work together. The investment will allow Chalco and Alcoa to participate in discussions about the evolution of the industry. Alcoa’s cooperation with Chalco is a long-term strategic partnership. Both companies will continuously explore further opportunities to cooperate. As a symbol of their strategic relationship, Alcoa and Chalco on February 14, 2008 jointly donated $500,000 to Anhui province for disaster relief.
Q: Alcoa and Chalco do not “intend to make an offer for Rio Tinto”, although the two firms reserved the right to announce an offer or participate in an offer in the next six months. Is there a possibility Alcoa might make a joint offer? If the two firms decide to go ahead with a bid, how will Alcoa benefit?
A: Alcoa’s relationship with Chalco is a long-term strategic cooperation. Both companies will work together to explore various opportunities for further cooperation. With the increasing importance of China, its aluminum market and the ambition of Chalco to go global, the strategic cooperation will certainly bring a win-win situation to Chalco and Alcoa. Our positions have not changed and we really cannot speculate on the future, because it would be just that — speculation.
Q: Alcoa’s China Bohai plant is set to come onstream this year. A sophisticated and hi-tech lithographic line is being installed. What are its commercial prospects once it becomes operational?
A: The Alcoa Bohai plant is Alcoa’s single largest investment in China in Qinhuang Dao, Hebei province, with a total investment of over $300 million. That’s also the single largest foreign investment in China’s aluminum industry. The full name of the Bohai plant is Alcoa Bohai Aluminum Industries Co. As planned, Alcoa is in the process of installing a brand new lithographic sheet manufacturing line in Bohai. The lithographic line is the world’s most sophisticated and hi-tech line with a much higher quality standard. It is believed that the newly installed line will run at the highest speed of all the global lithographic lines currently in operation. Today, China imports almost all its needs for lithographic sheeting from abroad. When the line is fully operational, it will help China replace most of its overseas imports of litho sheets. More importantly, the state-of-the-art technology will help China take its place in advanced lithographic sheet manufacturing and management. We are glad to report that the Alcoa Bohai expansion will be completed very soon and a grand opening will take place in the middle of 2008. We welcome visitors to see the new state-of-the-art plant, as long as its daily operation isn’t disrupted.
Alcoa was founded in 1888 and is respected as the leader in the alumina, aluminum and power industries and for its continuous efforts, advanced technology and sustainable growth strategy in environment protection. Since 1993, Alcoa has invested over $700 million and has 17 operations and offices in China. Alcoa Business System (ABS), an operation and management system developed by Alcoa through its over 110 years of operation, has been adopted by all our operations in China, which has significantly improved Alcoa’s productivity. Meanwhile, as a multinational company operating in 44 countries, Alcoa is continuously pursuing excellence and sustainable growth. Alcoa follows the values of integrity, environment, health and safety, customers, excellence, people, profitability and accountability. Alcoa was selected by the Davos Economic Forum as one of the most sustainable companies in terms of global growth for the past four years.
Q: How does China figure in Alcoa’s global business strategy? Is it seen as a global manufacturing base, a potential market or both?
A: We believe strongly that China represents most of the growth opportunities of the aluminum industry in the next five to 10 years.
China represents both manufacturing excellence and a huge market to most multinationals, including Alcoa. As a strong indication of Alcoa’s commitment, Alcoa has continued to expand investment in its facilities. Many new products will be onstream this year. While Alcoa recognizes and actively pursues the opportunities, we pay special attention to sustainable growth in China. As everyone knows, the aluminum production process consumes a great deal of energy, while aluminum is instrumental to China’s continuous growth and development. Meanwhile, aluminum can substitute many other metals that will help to significantly reduce greenhouse gas emissions and increase fuel efficiency. Taking the environment as an example, Alcoa committed to sustainable growth by significantly reducing emissions and increasing energy efficiency. Using 2000 as the base level, Alcoa has committed to reach a number of key environmental goals, including: a 60 percent reduction of sulfur dioxide by 2010; a 50 percent reduction of volatile organic compounds by 2008; a 30 percent reduction of nitrogen oxides by 2007; a 50 percent reduction of landfill waste by 2007; a 10 percent reduction of energy intensity by 2010; and a 60 percent reduction in process water use and discharge by 2009. Alcoa has also successfully reduced greenhouse gas emissions by 25 percent from the 1990 levels, despite increasing production. This shows we can have a truly positive impact on the industry, while helping growth.
Q: Is Alcoa implementing the same standards to ensure environment-friendly production in China as it has done in other markets? What has Alcoa done so far to make sure its production in China is environmentally friendly? What’s Alcoa’s strategy in this area?
A: Alcoa is well-respected as the leader in environment protection, employee safety and health. Alcoa holds the same environmental standards wherever it goes, be it in the Amazon, Iceland, Vietnam or China. As is always repeated in Alcoa’s business planning, Alcoa will do everything necessary to ensure environment compliance — even if it means additional cost. Alcoa is promoting and developing more technologies for extensive use of aluminum in various industries and markets. Aluminum has advantages that other metals cannot match. For example, use of aluminum, instead of steel, for cars and commercial vehicles can significantly reduce the weight of vehicles while increasing safety and performance. As a direct result, the vehicle will produce less greenhouse gas emissions and consume less gasoline. It is worth mentioning that, compared with many other metals, aluminum has a unique nature that can eventually make it greenhouse gas neutral.
As part of its environmental stewardship, Alcoa Shanghai has carried out a series of strict and thorough standards on environmental governance. In 2007, an environment project with total investment of 2.56 million yuan was completed to improve wastewater treatment and dust catchers were installed for four melting furnaces to catch dust in the process of ignition, reining and skimming. As a result, the particle removal efficiency reached over 90 percent, which led to an annual emission reduction of 42.43 metric tons. The Shanghai Minhang Environmental Protection Bureau, a local environmental protection authority, reported this achievement on its official website in July 2007. As a model company for environmental regulation compliance, Alcoa Shanghai was named the “Green Enterprise” in Minhang District for 2006. Another example, Alcoa Bohai, shut down its coal-fired boilers in July 2007 and replaced them with cleaner natural gas boiler systems for heating in winter. A solar heating system was installed for employee summer showers. The solar system itself helped reduce coal consumption by 8,000 metric tons, needless to say emissions were reduced.
Alcoa needs to work with its Chinese counterparts to promote extensive use of aluminum to replace other metals, both for environmental protection and fuel efficiency. On top of the technologies Alcoa has brought into China, Alcoa plans to bring in more new technologies. Alcoa is in the process of considering the feasibility of bringing its state-of-the-art, newly developed, patented technology — the micro mill process — to China.
Q: Alcoa said previously it would do two things to expand its China business: continuously improve its operations to make it more productive and more environment- and energy-sensitive; and look for growth opportunities. What’s Alcoa’s plan this year to make its existing operations in China more productive and energy efficient?
A: Alcoa has done many things to improve its productivity. ABS is one of the most efficient means to improve productivity.
The Alcoa Business System, or ABS, is an integrated set of principles and tools used to manage Alcoa businesses. The three overarching principles of ABS are: make to use; eliminate waste; and the people linchpin system.
While ABS is about improvements, it has also led to significant cost savings. While ABS has helped deliver substantial savings, there are significant opportunities ahead in both savings and in extending the entire business system of the company.
Of the more than 350 operating locations of the company, approximately 100 have realized significant gains, major improvements or are setting new benchmarks for performance. At our other approximately 270 operating locations, we are either initiating ABS or are realizing the early gains that can be achieved. We are using our years of experience applying ABS to systematically capture improvements faster and transfer knowledge across the organization more quickly.
Alcoa is determined to grow with China’s aluminum industry and to work closely with various Chinese companies including Chalco. The aluminum industry, in essence, is a vertically integrated industry and in many cases it is internationally integrated. Alcoa has operations in 42 countries with nine refineries and 26 smelters. Alcoa has extensive access to bauxite refineries and smelters and has world-leading fabrication capabilities. Alcoa is recognized globally as a leader in energy development and environment sensitivity. Alcoa supports Chalco’s efforts in going global while Alcoa will carry out its global strategy to a greater extent in China.
Q: Alcoa said a paradigm shift was needed for sustainable and environment-friendly development in China. Do you think it is feasible for China to reach its goal of emissions reduction and energy conservation through a paradigm shift?
A: We believe that the most important factor to make or maintain sustainable and environmentally friendly development is through a paradigm shift. The paradigm shift we refer to means that all of us should have a very strong sense of urgency to do everything possible and necessary to create an environment-friendly aluminum industry in China. In other words, the paradigm shift is more an operational concept of change and a thorough awareness of environment protection and energy efficiency. Many Chinese companies are working hard to change their operational concepts and sense of environmental sustainability and energy eficiency and some of them have been quite successful.
As a result of this paradigm shift, some extra investment or cost in environment protection, employee safety, health and community services may be incurred. This is our social accountability. We are glad to see that, as a responsible company, Chalco is working hard in this area, as are so many other Chinese companies. Alcoa was delighted to work with Chalco’s visiting group and host them at Alcoa’s Western Australia operation to share with Chalco Alcoa’s experience and lessons learned in dealing with the environment, employee safety and health. We need to share our technology and experiences, including lessons learned. On the other hand, many technologies should be developed or adapted by companies to help reduce emissions and save energy. Alcoa is the industry leader in developing new technologies and operational management optimization for energy saving and emissions reduction. More than 600 engineers and scientists are working in Alcoa’s global technology center. During the smelting process, Alcoa is currently able to reduce 80 percent of perfluorocarbons (PFCs) from its 1990 level by controlling voltage, anode performance, liquid height and bath chemistry stability. The current average PFC emission rate in China is projected in some areas to be approximately 1.6t CO2/t aluminum, though these figures are difficult to verify across the Chinese aluminum industry. By using Alcoa technology, emissions can be significantly reduced, perhaps to as low as 0.5t CO2/t aluminum or even lower. This reduction itself means 13 millions tons less of CO2 emissions annually, based on the current China production volume of 12 million tons of aluminum. In other words, it’s equal to the effect of planting 117 million evergreen trees in China’s southwest mountain areas.
Q: Alcoa said earlier it is willing to bring many of its technologies to China to help the local aluminum industry reduce emissions and save energy. Can you elaborate on specific technology transfers from Alcoa to its Chinese counterparts that could reduce emissions and save energy?
A: Alcoa is willing to share with our Chinese partners technologies that will help the environment or reduce emissions.
We’ve noticed that Chalco has improved some technology to boost energy efficiency. Alcoa has technology that leads to a similar result. Alcoa is willing to share with Chalco our experience in this area. Alcoa is willing to work with responsible companies to improve their technologies.
Q: What is aluminum’s advantage as an industrial material for emissions reduction and energy conservation? And what industrial segments can benefit from the use of aluminum as an environment-friendly and energy-efficient material? What industrial segments in China will Alcoa support and invest in?
A: The advantages of aluminum versus other metals are almost limitless. Aluminum is extensively used in many developed countries. Although China represents almost one-fourth of global aluminum production, China’s aluminum consumption is less than 7.5 kg per capita compared with approximately 30 kg per capita in the US or Japan. There is huge room for extensive use of aluminum to replace or substitute many other metals. Aluminum has advantages that many other metals cannot match. For example, use of aluminum instead of steel on cars and commercial vehicles can significantly reduce the weight of each vehicle. As a direct result, the vehicle will produce less greenhouse gases and consume less gasoline.
Take buses, for example. Alcoa is working with Yutong Bus Co on using aluminum to partly replace steel. When the bus is built in accordance with Alcoa’s design, its weight is about 1,100 kg less than the pure steel one, which is 15 percent of the total bus weight. This 1,100 kg weight reduction helps cut over 25 metric tons of greenhouse gas emissions and saves over 11,000 liters of gasoline over the 400,000 km lifespan of the bus.
There are many other industries and areas— such as rail, auto and shipping — that can benefit from extensive use of aluminum. China is developing its railway and highway systems and shipping industry. Aluminum is extensively used in these industries globally. We trust it will be extensively used in China as well.
Further, it is extremely important to point out that aluminum is a metal that can be reused and recycled with very little loss. It is amazing to note that over 70 percent of aluminum produced 100 years ago is still in use or being reused. It is equally important to note that recycling aluminum uses only about 5 percent of the energy used in primary aluminum smelting. It would not be surprising to see China turning its attention to aluminum reuse and recycling. Alcoa is actively participating in China’s “Jie Neng Jian Pai” (reduction of greenhouse gas emissions and energy consumption).
Q: Alcoa is a leader in the global aluminum industry and also in China for some aluminum products. Does it plan to do more localizing of production in China in the foreseeable future? Compared with Chalco and other local aluminum producers, Alcoa’s scale is still small in China. What’s the plan for the Chinese market?
A: Alcoa is a leader in the global aluminum industry and is also a leader in China on certain aluminum products. For example, Alcoa is one of the largest suppliers of brazing sheets and foils. Alcoa will be the only domestic supplier of lithographic sheets after it goes into full production. Alcoa is also one of the largest body stock material providers to China. Alcoa is supporting China’s aerospace industry and supplies most of the materials for China’s national aircraft project, the ARJ21. Alcoa considers China a top priority.
Alcoa is carrying out its localization plan determinedly. This localization process means localization of Alcoa’s technologies, operations, equipment and customers. For these reasons, Alcoa has invested in China over $700 million in the past 15 years. Alcoa has over 17 operations in China and most of them are in a very good position. More importantly, Alcoa is expediting its talent localization process. More and more local employees are becoming managers and directors of the company’s China operations. The current president of Alcoa Asia-Pacific is Chinese. He is the first Chinese to take up a senior position at Alcoa.
Our plant in Shanghai is supplying foil to many Chinese as well as multinational companies on a daily basis. Our Kunshan plant is one of the largest suppliers of brazing sheets for China’s automotive industry. Besides brazing sheets, our Kunshan plant also supplies sheets and foils to local and global markets. Alcoa’s single largest investment in China is in Qinhuang Dao, Hebei province — Alcoa Bohai Aluminum Industries Co. Alcoa has invested over $300 million in the plant, which is also the largest foreign investment in China’s aluminum industry. As planned, Alcoa is in the process of installing a brand new lithographic sheet manufacturing line in Bohai.
Alcoa is very determined and committed in China. By working with Chalco and other successful Chinese companies, Alcoa will build a stronger presence in China.
AT A GLANCE
Alcoa is the world’s leading producer and manager of primary aluminum, fabricated aluminum and alumina facilities. The company serves the aerospace, automotive, packaging, building and construction, commercial transport and industrial markets, providing design, engineering, production and other services to customers.
In addition to aluminum products and components including flat-rolled products, hard alloy extrusions and forgings, the company also markets Alcoa wheels, fastening systems, precision and investment castings, structures and building systems. It has 107,000 employees in 44 countries and was named one of the world’s most sustainable corporations at the World Economic Forum in Davos, Switzerland.
Alcoa first entered China through a technology relationship with China Non-Ferrous Corp (now Sino Metals) in the 1980s. Since 1993, Alcoa has invested more than $700 million in China’s aluminum industry. Alcoa China has 17 locations and employs 2,200 people.
Offices and plants are located in Beijing, Shanghai, Qinhuangdao, Kunshan, Hangzhou, and Hong Kong. Products include foil, sheeting, fasteners, automotive components, construction products and plastic closures. Alcoa China is a member of the China Business Council for Sustainable Development and the Executive China Association of Enterprises with Foreign Investment.
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