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Brighter future

Dec 22, 2016 | 11:45 AM | Kirk Maltais

Tags  Alf Barrios, Rio Tinto, aluminum, 2017, sales, growth, automotive, aerospace

Alf Barrios leads Rio Tinto’s aluminum division forward as he still sees aluminum as one of the growth commodities of the future, especially in a robust North American market filled with both strict competition and strong opportunities.

Rio Tinto Plc’s aluminum division is maintaining its course for long-term growth in the industry thanks to an even-keeled strategy helmed by its leader, chief executive officer of the aluminum division Alf Barrios.

“We have a very optimistic outlook in the long-term,” Barrios told AMM during an exclusive interview. “What we’ve seen is that the market is coming back into the next few years.”

Over the course of the next 10-15 years, Barrios and the company, formerly known as Alcan Inc. before being taken over by Rio Tinto in a friendly acquisition in 2007, expect growth of approximately three-percent per year worldwide, with growth of 2.5-percent per year in the North American market fueled largely by automotive and transportation.

“We see aluminum as one of the growth commodities of the future,” Barrios explained. “We continue to see a robust market in North America.”

Barrios describes the company’s attention to long-term, while opting not to get bogged down in short-term concerns related to the fluctuations of the aluminum market, as “simple.” Perhaps the better word is “steady” – as the company knows it has access to one of the biggest supply chains worldwide, allowing for them to get its production to where the demand is.

Being a part of Rio Tinto’s large presence in the metals and mining world has allowed the aluminum division to weather the tough market conditions of recent years, Barrios said. The industry isn’t out of the woods yet, in terms of grappling with the major supply overhang fueled by excess production from China – and the aluminum division’s future plans reflect this reality.

“The market is quite challenged – the need for new smelter capacity in North America is limited,” explained Barrios. “(But) we continue to grow – we’re doing that by letting Kitimat grow.”

The Kitimat, British Columbia smelter is perhaps the crown jewel of the aluminum division’s smelters. Following a lengthy $3.3-billion modernization process, the company spent 2016 ramping Kitimat up to its full production rate of 420,000 tonnes per year. In lieu of building any new smelters, the company’s concentration will be on pushing smelting technology forward to further boost its production at all of its smelters, including Kitimat.

Not that Barrios is in any rush to push his smelters production rates to their upmost limits – he realizes that there is a projected 11 million tonnes of aluminum supply worldwide, both in London Metal Exchange warehouse and not under warrant. Thusly, a supply overhang is lingering on the world’s aluminum supply – and Barrios does not want to jump the gun.

“We still have to wait a few years before the market is truly balanced,” said Barrios. “There still is a bit there to be looked at, in terms of future potential market rebalancing.”

2016 has been a key year for the aluminum market to reorganize itself on a global scale, with participants in the market addressing key issues.

“I think I see (2016) as a year of starting to consolidate the inflection in the market,” Barrios said. “I think what we’ve seen, for me, is a year of overall transition towards a much more balanced market.”

According to the most recent projections by IHS Markit Ltd., a global deficit of approximately 500,000 tonnes is expected for 2017 – contingent on how strictly China enforces its most recent streak of environmental regulating.

Barrios is bullish on aluminum’s prospects in North America – perhaps fueled by the attention being paid to handling issues stemming from Chinese overcapacity and general trade with the nation. “To be frank, we see (North America) as a market with a robust outlook.”

Barrios is also confident that trade issues within North American borders will not derail the company’s progress – despite calls from U.S. President-elect Donald Trump to renegotiate the North American Free Trade Agreement (Nafta) to try and keep U.S. businesses from moving operations out of the country, which would put a crimp on both the multi-national supply chains of major automakers and Canadian aluminum producers who sell into the U.S. However, Barrios is not worried about any negative blowback from Trump’s victory, believing that the relationship between Canadian aluminum and the U.S. auto sector is strong enough to withstand such challenges.

“Interests are aligned in very many ways,” Barrios said. “If the U.S. auto industry is doing well, than so is the Canadian aluminum industry.”

This confidence also manifests itself in the company’s decision to remain firmly in the upstream side of the business – at a time when many competitors have looked at ways to enter the downstream value-add fray.

“Our view is that we supply our customers with an unique value proposition,” Barrios said, explaining that the company having access to Rio Tinto’s global resources, combined with its own strong presence in bauxite, alumina, and aluminum, have made easy for the company to answer the question ‘should we move downstream?’ with a resounding ‘no.’

“We don’t see any need to move downstream at all,” said Barrios. “We look forward to supplying the downstream.”

Thusly, Barrios shot down rumors that the aluminum division was considering a split from Rio Tinto, ala Alcoa’s split of its upstream and downstream divisions into two separate companies earlier this year.

“When you look overall at the position we have globally, we have the benefit of being part of Rio Tinto – which we wouldn’t have if we were standalone,” Barrios said. “(We’re) fully integrated – if you go to any sites, you would get a sense of the culture (and) best practices.”

That’s not to say that Barrios and the company have completely divorced themselves of their former identity as Alcan, a North American aluminum giant in its own right. “To be honest, since I’ve been here, people are proud of working for Rio Tinto... (but) there’s also a lot of pride in the heritage,” he said. “Alcan was a key part of our history, I wouldn’t want to not mention it.”

It stands that Barrios is comfortable, although not complacent, with the aluminum business being a thriving piece of Rio Tinto’s operations. He believes that 2017 will only serve to further highlight the success of the company’s exploits of the past few years.

“I’m confident that next year will be another great year for Rio Tinto,” Barrios said. “I have no doubt that we’ll continue that performance, to put a larger gap between us and our next-largest competitor.”


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