Industry Special: Bright future for 'miracle metal'

(chinadaily.com.cn)
Updated: 2012-09-14

Alcoa CEO Klaus Kleinfeld shares histhoughts on China's aluminum industry

Editor's note: Klaus Kleinfeld,chairman and CEO of Alcoa - theworld's leading aluminum producer - is now participating in the Annual Meetingof the New Champions, or Summer Davos, in Tianjin. A multinationalcorporation executive with richexperience of growing a business inChina, he talked with China Daily aboutthe challenges facing the nation'saluminum industry and Alcoa's latestdevelopment in China.

Q: China's economic data has notindicated clear signs of bottoming-out.During Premier Wen Jiabao'sinspection tour of Zhejiang province, hewarned that the foundation foreconomic growth is still unstable andthat economic hardships may continuefor some time. What are yourobservations on the Chineseeconomy? What is your outlook for theChinese aluminum market?

A: I am confident that China will continue to be the primary driver of growth on a global scale.

Premier Wen is right - the Chinese economy is in a state of adjustment. Managing the growth of China's economy will continue to be difficult, but the long-term prospects remain extremely positive.

The aluminum market in China is a great example of this.

Currently, China accounts for about 45 percent of the global primary aluminum market and is mostlyself-sufficient, producing as much as it consumes.

We expect the Chinese aluminum market will grow by 11 percent in 2012 - faster than GDP - becausetrends like urbanization and the expansion of the middle class are driving growth in industries likeaerospace, automobiles, home appliances, consumer electronics, beverage packaging, commercialbuilding and transportation. While these industries have always used aluminum - recent efforts toreduce weight, recycle, and save energy - have increased their aluminum intensity even further.

In China, Alcoa focuses on downstream, fabricated aluminum production that serves those growthmarkets and ideally situated to capitalize on their growth.

Q: China's State Council has just announced plans to invest 2.37 trillion yuan ($372 billion) in majorenergy-saving projects during the 12th Five-Year-Plan period (2011-2015). The projects are expectedto save the country an equivalent of 300 million tons of coal. Can you comment on this initiative?

A: The 12th Five-Year Plan is on target, not only with its energy and carbon intensity goals, but alsowith its focus on urbanization and development of strategic industries.

China is right to focus on clean energy and environmental protection for two reasons.

First, it is clear that the China's natural environment is under severe stress. The damaging effect ofcoal power on air quality and widespread water shortages are becoming a drag on competitiveness.

Second, the clean energy technologies and environmental protection innovations needed to solvethose problems will be increasingly valuable going forward.

Sustainability is a strategic priority not just for corporations in China, but also for the entire economy.

Q: How does Alcoa position its future growth in China? We've learned it has finalized a joint ventureagreement with China Power Investment Corp. How will the joint venture contribute to the futuregrowth of Alcoa in China? What's your next project or investment plan in China?

A: Our joint venture with CPI is a perfect fit, not just for our businesses or the aluminum market, butalso for China's development goals.

As a leading manufacturer of high-end fabricated aluminum products, Alcoa has years of experienceand unmatched technologies to serve the aerospace, automobile, commercial transportation,consumer electronics and packaging markets. Our partnership with CPI will enable us to supply theserapidly growing markets from a competitive cost position.

We are also developing plans to partner with CPI outside of China, in circumstances where CPI's andAlcoa's strengths can be utilized at their highest economic potential.

Q: We've learned that Alcoa has been part of one of the most advanced breakthroughs in humanhistory. The most recent news is Alcoa's aluminum fasteners are installed on the Curiosity rover onMars. How important is that innovation to Alcoa and please elaborate on some of your most innovativetechnologies or products.

A: Alcoa was founded 125 years ago by Charles Martin Hall, who created the modern-day aluminumproduction process at the age of 22. His innovative spirit continues to drive Alcoa into the future andalso into space.

In fact, aluminum has been used on every single space mission since the dawn of space travel.

Curiosity's mission to Mars is a monumental event in human history. It is true - Alcoa's high-strengthfasteners hold Curiosity's structural components together and keep equipment securely attached tothe body of the rover. Alcoa is proud to have made yet another significant contribution to a NASAmission.

Our innovations continue to have profound impact in space, on earth, and everywhere in between.

Alcoa's aluminum-lithium alloys make planes lighter and more durable, allowing the Boeing B737-Maxand Airbus A320Neo to burn 15 percent less fuel per seat.

Our countless innovations not only set us apart from the competition, they open up new markets forour "miracle metal". Innovation is in our DNA.

Q: New electrolytic aluminum production site are now being built in China's western regions. We'veseen reports of increasing capacity in Xinjiang and Qinghai. What are the challenges?

A: China's aluminum industry is going through a very critical stage in its development.

Although the industry has grown quickly through the last decade, it is now faced with overcapacity, lowprices and constrained access to bauxite imports from Indonesia.

Chinese aluminum production is expensive and not particularly clean.

About 80 percent of all refineries and 87 percent of all smelters are in the top half of the global costcurve. Over 90 percent of power to Chinese smelters and refineries comes from coal. As a result,one-third of China's production capacity is unprofitable.

Unfortunately, the shift of production to the coal-rich west has not addressed any of the fundamentalproblems, and will have a minor effect on its global cost curve position.

China's high-end fabricated aluminum sector is much more promising, however. Local firms have yetto fully develop heat-treated sheet and plate, forging and extrusion capabilities that are needed tosupply the automotive and aerospace markets, where there is ample opportunity for growth.

End-user markets like automobiles and aerospace have great potential to provide balance to theChinese industry.

Partnerships with firms like Alcoa will move the industry up the value chain, provide qualityemployment and make more efficient use of investment capital.

Q: You have been known as a leading multinational corporation executive with rich experience inChina. Alcoa has been well recognized by Chinese central and local governments as well as industryauthorities. What is your impression of doing business in China?

A: My first visit to China was in the early 1980s. Since then, it has been a privilege to experienceChina's rapid development first hand.

My team in China and I have met with the Ministry of Commerce, the governments of Hebei,Qinghuangdao, Kunshan and Suzhou many times. The support of local leadership has beeninstrumental in Alcoa's growth and continued success in China.

Q: You've been at the helm of world famous companies like Siemens and Alcoa. Could you share withour readers what are the most important leadership traits you have learned through your years assenior executive? What is your management style? What type of environment should a companycreate to grow and develop future leaders?

A: My mantra is "nobody is perfect, but a team can be". Teamwork, honest feedback andcommunication are cornerstones of success for any organization.

At Alcoa, we emphasize shared values. Every employee, shareholder and community member - everystakeholder - must be treated with respect.

All employees at Alcoa, regardless of their level or location, must demonstrate not only a highperformance approach to their work, but also live the values we hold dear in our company. I call thisthe "values-performance paradigm."

My approach is to make my expectations clear, to differentiate performance and to constantly searchfor and develop talented people by exposing them to challenging assignments that force them tostretch and grow. My own approach is to work as hard as I can to ensure a prosperous future forAlcoa.

zhuanti@chinadaily.com.cn

(China Daily 09/11/2012 page13)