August 8, 2011
“Russia needs to become more predictable”, - Klaus Kleinfeld, Chairman and CEO, Alcoa Inc. in an interview with the Vedomosti
Alcoa didn’t expect that the price for electric energy in Russia would jump up by 40% over the last couple of years, complains Klaus Kleinfeld.
When you see a businessman with a wide smile on his face, it’s hard to believe that this is the man who was called by Financial Times Deutschland  in 2006 “ the most hated corporate manager” in Germany. Klaus Kleinfeld has behind him Siemens rescue, selling cell phone manufacturing division of the German giant  to Taiwan competitors and subsequent corruption scandal when investigators ransacked his papers right in the office.  From April last year  Kleinfeld is Chairman of the Board of Directors of the 3rd largest aluminum producer in the world, the U.S. company Alcoa. “Aluminum market has a bright future”, he is convinced. To Kleinfeld’s opinion, there is no alternative for the “flying metal” so far, and in the next 10 years its consumption will double. 
 
- How Alcoa went through the crisis?
- In my opinion, great. The crisis has only reinforced the company. Throughout the history of  aluminum industry there was no situation when the average price for its products would drop by 60% and stay at that level for five months. We have coped well with the difficulties and went out of them stronger than we used to be before.

- You had losses during the crisis. And what is financial status of Alcoa now?
- I would describe the financial condition of the company as a very strong one. We have recently received new ratings from agencies and they are much higher than those that we had during the crisis. Alcoa is feeling well.

- You fired about  27,000 people over the crisis. Have you begun to restore the headcount?
- It shouldn’t be called “firing”. During the crisis we sold half of the businesses together with the staff, so reporting showed that the number of people in Alcoa has drastically reduced. Although, there were layoffs. Yes, we are resuming recruitment now and have already hired 2,500 new employees.

- Historical minimum of price for aluminum was registered on February 22, 2009 - $1305 per ton. How the price is rising now? What figures do you take for making one-year, three-year, ten-year forecasts?
- We see that there are more and more industries that use aluminum. In the past, it was most actively used in electrical engineering and aircraft building. Now aluminum is very widely used by the automotive industry in Europe and the U.S. – car builders want their cars to be light-weight. This is just one sector. But there are, for example, packaging manufacturers who also demand more and more aluminum. Besides, aluminum is a light and infinitely recyclable metal. In this respect, it is well competitive with glass and plastics, which are heavier and less recyclable. Aluminum plays an increasing role in consumer electronics sector. That's why we anticipate a 12% growth of aluminum demand  this year and we believe that in the next decade aluminum consumption will double. And the price, as you understand, is formed just by the volume of demand and supply.

- As you have already mentioned, car builders are increasing usage of aluminum. This material is lighter than steel which allows production of better fuel-efficient cars. And what  about your traditional customers - aircraft manufacturers? In fact, this industry started a wide use of composite materials.
- I’d like to note that aerospace industry is bringing good news - it comes back to life. For example, in Russia you have built a very good aircraft Sukhoi Super Jet. Of course, we see that the industry is using many different materials capable to compete with aluminum. However, the question what material is the most cost-effective still remains open. Say, Mitsubishi announced they would built a plane primarily made of composite materials, then reversed that decision and decided that major sections would still be aluminum, including the wing. For aerospace applications aluminum has not been surpassed yet in terms of its performance.

- Are there any prospects for the use of aluminum in construction?
- Well, it's already used in construction to a full swing. Modern door  and  window frames, for example, are made with the use of aluminum. But to my mind, it can be more actively used in construction of buildings and other structures. Say, for gas stations and pavilions. Aluminum is very environment- friendly. For example, a gas station built using  our innovative Eco-Clean coating instead of conventional materials  provides positive environmental  impact equivalent to 80 trees.

- Do you think that demand for aluminum in the next years will be driven by growing consumption of this metal in Southeast Asia and China, in particular?
- If you look at the aluminum market now, it is easy to see that 40% of all metal is consumed by China. Over the recent years, aluminum consumption is growing there by 15% -20% a year. China has a shortage of electric power, so it’s quite difficult to produce sufficient quantity of aluminum there.

- And if you could dream up - what would be the use of aluminum in 20, 50, may be 100 years from now?
- It is very hard to make such a long-term forecast. I have already said that I expect consumption to double by 2020.

- In one of the latest interviews you said that you were proud of Alcoa internationality. That in the U.S. it is regarded as an American, in Brazil - the Brazilian, in Canada - the Canadian. Do you feel in place being in Russia?
- Yes, in Russia we are a Russian company. We have two locations here. In Russia the industry has a great story. I was born in 1957, when the Russian satellite was the first to orbit the Earth. We are very proud to be involved in creation of aerospace history in your country. For local professionals working in Alcoa is a great opportunity to join a large international team, to improve professionalism and to build a bright future for themselves and their children.

-What problems do you experience in Russia? Your colleagues - foreign investors - talk about bureaucracy, rampant corruption and complexity of the country’s migration law.
- About two years ago, I talked to President Medvedev and asked him a question about the bureaucracy. It is particularly strong at the regional level. There is some in the center, too, but not as serious as in the province. We submit to the Russian tax authorities over  115,000 pages of various documents on a yearly basis.  Who reads them, I wonder? This was the example I gave at the meeting with Medvedev, saying that there is still a great potential for increasing the efficiency of the system.

- What, in your opinion, should be changed in Russia so that the country would become more transparent for foreign investors?
- It depends on the industry where you work. For us, for example, an acute problem is energy cost. Over the last couple of years, the cost of electric energy increased by 40%. This was unexpected. The price of energy is formed by using over 15 different indicators, which is very difficult to forecast. In addition, energy cost depends on location of the production facilities. When the costs jump so suddenly, making any forecast seems to me an awkward task. Russia needs to become more predictable.

- And have you faced any cases of corruption in Russia?
- We have a very strict policy in this respect. It implies a complete rejection of corruption in any form.

- Do you have any problems in relations with Russian officials due to such position?
- We have a fantastic support at the federal level. We are well cooperating with officials at the regional level, too. But here I’d like to point out that bureaucracy lives on its own, it greatly complicates our life.

- Alcoa invested over $750m in purchase and development of the two Russian plants. What are your future plans? Do you intend to buy any additional plants or build new ones?
- I’d like to emphasize that the company is well-satisfied with this investment. We have unique facilities allowing for production of high quality products. During the crisis, the need for aluminum dropped, but now it is growing again from day to day. We are considering various possibilities for the company in Russia. I must say, that if we compare productivity at Russian plants with other Alcoa locations, there is, obviously,  still much to improve.

One of the highest cost items for aluminum industry is electric power. In Russia it is, so far, inexpensive versus other countries. . If we see any new opportunities in Russia, we would certainly use them.

- Several years ago, Alcoa was the largest aluminum producer in the world. Now, China's Chalco and Russian UC Rusal left you behind, throwing back to the third place. Don’t you think that the company missed some opportunities failing to merge with Alcan in 2007?
- There was a very serious price war for Alcan. Though, the struggle in our industry is not for the volume, but for effectiveness of the company’s performance. What’s important is who is the best, not who is the largest.

- For a long time you have worked at Siemens, a high-tech company, why did you decide to go in raw?
- I am very pleased with this choice. The aluminum industry provides a lot of opportunities for innovation and development of new unique technologies and products that impact many other industries from aerospace and automotive to building and construction and consumer electronics.

Biography
Born on November 6, 1957 in Bremen (Germany), in 1982  graduated from Goettingen University with MBA diploma. Ph.D. in strategic management.

1987
Started his career at Siemens as corporate sales and marketing  group manager.

2001
Head of Siemens representative office in the U.S.

2005
CEO, Siemens AG

2007
Alcoa President and CEO

2010
Alcoa Chairman


Alcoa
Aluminum company
Shareholders: almost 100% of shares are in free circulation, major institutional investors are State Street Corp (4,71%), Vanguard Group (4,5%), Capital World Investors (3,98%).
Capitalization - $13.8bn
Financial indicators (2010):
revenue - $21bn
net income - $254m
Production of primary aluminum – 3.6m tons (2010).
Established in 1888 as The Pittsburgh Reduction Company, in 1907 renamed into Aluminum Company of America, in 1999 official name was shortened to Alcoa. Alcoa operates in Russia since 1993.
 
Alcoa in Russia
From 2005 Alcoa incorporated Samara Metallurgical Plant (ZAO Alcoa SMZ) and Belaya Kalitva Metallurgical Production Amalgamation (ZAO Alcoa Metallurg Rus). Alcoa has already invested over $760m in their upgrade.