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Alcoa Vision & Strategy
At Alcoa, our vision is to be the best company in the world—in the eyes of our customers, shareholders, communities, and people.
Supporting that vision are our values and principles and a business strategy that integrates our sustainability approach, which includes our 2020 Strategic Framework for Sustainability, and builds upon opportunities in our various markets.
Aluminum Industry Outlook
In 2008, Alcoa was faced with an unprecedented decline in the London Metal Exchange (LME) cash price per metric ton of aluminum, as well as significant declines in demand across many of our downstream markets.
Although global demand for aluminum will remain weak in 2009, the fundamental benefits of aluminum still remain. In the long-term, we expect the demand for aluminum will increase and return to levels projected prior to the economic crisis. Additionally, global megatrends, especially demographics, urbanization, and environment, will continue to support and drive aluminum consumption in the future.
These trends will benefit our preferred metal, as it plays a significant role in the infrastructure of developing economies. This includes light weighting of transportation equipment and special applications where aluminum is not substitutable. Further, aluminum’s characteristics of light weight, strength, and fuel efficiency will continue to propel its use as one of the premier options in helping the world deal with climate change.
As a result, we still forecast global aluminum demand to increase by 6% per year over the next decade. The vast majority of this growth will be in China, but there will be significant growth in India, the Commonwealth of Independent States (which includes Russia), the Middle East, and Latin America.
Primary Aluminum Consumption by Region
2009 Market Outlook
Business Strategy
In response to the economic crisis in 2008, we made the decision to reduce aluminum production by 750,000 metric-tons-per-year (mtpy) and alumina production by 1.5 million mtpy to bring our total system-wide output reduction to 18%.
Our management also initiated several actions to secure cash and safeguard our liquidity:
- Halted all non-critical capital expenditures;
- Suspended the existing share repurchase program;
- Reduced 2009 capital expenditures by 50%;
- Accelerated procurement initiatives to address key input costs;
- Added a new 364-day revolving credit facility;
- Initiated global headcount reductions;
- Instituted a global salary and hiring freeze; and
- Decided to sell the Electrical and Electronic Solutions, Global Foil, and Transportation Products Europe businesses and to close the lone remaining Auto Cast Wheels facility.
Additionally, we agreed to exchange our stake in the Sapa AB joint venture for the remaining stake in Elkem Aluminium ANS with Orkla ASA. This transaction will provide us with increased smelter capacity while divesting a business that operates in a difficult market.
In the longer-term, our business strategy is predicated on achieving the following objectives in a sustainable and reliable manner:
- Demonstrate speed and execution in response to changing economic conditions, in line with our three strategic priorities—profitable growth, Alcoa advantage, and disciplined execution;
- Maintain global leading positions in all of the key upstream and downstream business areas;
- Take advantage of our world-class bauxite and alumina positions and continue to secure long-term, low-cost, stranded power;
- Complete investments in growth projects, such as the bauxite reserves and associated refinery and hydroelectric projects in Brazil;
- Continue to improve margins through productivity and value-added products;
- Deliver new products and applications to rapidly expanding common-end markets through innovative and proprietary technology solutions, unique equipment, and complex processes;
- Employ a prudent approach to capital management and commit to cash-conservation actions;
- Conduct business in an ethical manner and obey all laws and regulations;
- Enhance the economic and social well-being of the communities in which we operate; and
- Operate worldwide in a manner that minimizes effects on natural habitats and biological resources.
Please see the Economic section for more detailed information on how we are driving growth across our business.
Major Challenges
There are a number of short-term and longer-term challenges that face our company as we seek to expand our operations and more fully integrate sustainability into our business.
The short-term challenges are more focused on conserving cash and preserving liquidity. The longer-term challenges include:
- Eliminating fatalities from our workplace.
 more
- Finding low-cost, reliable energy sources. more
- Maintaining our 25% reduction in greenhouse gas emissions. more
- Reducing our freshwater consumption and mercury emissions to achieve our short- and long-term goals. more
Risk Assessment
A discussion of the risks Alcoa faces can be found in the Form 10-K for the year ended December 31, 2008. Some major risks include the following:
- Uncertainties regarding the duration or severity of the current global economic downturn and disruptions in the financial markets and their impact on Alcoa;
- Material adverse changes in aluminum industry conditions generally, including global supply and demand conditions and fluctuations, including sustained declines or further deterioration, in London Metal Exchange-based (LME-based) prices for primary aluminum;
- Recent downgrades in our credit ratings and any additional downgrades in the future, and their effect on our cost of borrowing and access to capital markets;
- Failure of financial institutions to fulfill their commitments under credit facilities;
- Rising energy costs or energy supply interruptions;
- Increase in the cost of raw materials or significant lag effects for decreases in commodity- or LME-linked costs of production;
- Inability to successfully implement Brazilian growth projects and/or realize expected benefits from portfolio streamlining strategy;
- Political and economic risks and events beyond our control in the countries in which we operate;
- Fluctuations in foreign currency exchange rates and interest rates, as well as inflation and other economic factors in the countries in which we operate;
- Reduction in Chinese demand;
- Highly competitive conditions affecting our markets and products;
- Further metals industry consolidation;
- Significant downturn or further deterioration in the business or financial condition of a significant customer or supplier;
- Significant legal proceedings, investigations, or changes in law;
- Costs and liabilities associated with health, safety, and environmental laws and regulations;
- Adverse effects or uncertainties regarding climate change, climate change regulations, and greenhouse effects;
- Potential additional contributions to defined benefit pension plans as a result of adverse changes in interest rates and the capital markets;
- Union disputes and other employee relations issues;
- Inability to realize expected benefits from productivity and cost-reduction initiatives;
- Inability to successfully implement new technology initiatives; and
- Unexpected events’ impact on cost of doing business or disruption of operations.
Measuring Success
We have a long history of using metrics as a means to drive change within the company. One of the most visible and effective drivers is our 2020 Strategic Framework for Sustainability, which helps guide our businesses and measure our progress toward our vision for 2020.
Supporting that framework is a variety of systems and processes that collect data from our global operations and make them available to those who need the information to evaluate performance and drive continuous improvement.
For example, we initiated a process in 1988 to collect and display current, detailed information on safety in a way that would be available to all employees who need the information to evaluate performance and drive continuous improvement. We have expanded the original data system to include incident management, and we now use the system for all environmental, health, and safety data collection, incident management, and reporting.
At any time, we can use the system to determine current safety statistics, including accidents or near misses that occur anywhere in the world on a particular day. We can also view detailed reports on incidents, review the corrective action plans or status of a corrective action, and evaluate our progress toward our goals in environment, health, and safety. The system is an excellent management tool that has helped us facilitate our rapid progress in these areas.
As part of our commitment to openness and transparency, we began publishing real-time safety data publicly on www.alcoa.com in 2003 to provide timely insight into our performance on this critical measure.
We continue to work on determining what regional or global metrics are required to guide us toward the achievement of sustainability, particularly in the more complex and difficult-to-measure social aspects of our operations.
Industry Leadership
As a leader in the aluminum industry, we believe it is our responsibility to help shape the direction of the industry to ensure it is continually improving and moving toward a more sustainable future.
One of the ways we do this is to be a major participant in industry associations and organizations. We go beyond just paying membership dues to having our company’s senior leaders and experts serve as officers, committee members, and information resources. Please see our list of stakeholders for more detailed information on our industry participation.
We also take a leadership position on major issues facing our industry, such as climate change. Not only are we a founding member of the U.S. Climate Action Partnership, we also are a charter member of the World Resources Institute Green Power Market Development Group.
Additional information can be found in the Sustainability Approach section.
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Aluminum-Making Process
It all starts with dirt.
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