Rio Tinto cautious on aluminum outlook

The Australian reported that Rio Tinto Alcan remains cautious about the short term outlook for aluminum although demand should continue rising in the long term and contribute to a doubling of the company's profit margin.

Ms Jacynthe Cote CEO of Rio Tinto Alcan said that "We remain cautious of the short term outlook for aluminum. The physical market remains tight but inventories remain at high levels. Nevertheless, urbanization and development in the BRIC countries continue help drive long term aluminum demand and boost currently low levels of per capita aluminum consumption globally. There's still a lot to come for aluminum."

According to Rio Tinto Alcan's presentation, global aluminum supply is forecast to rise to 55 million tonnes in 2015 from an estimated 45 million tonnes in 2011 and 32 million tonnes in 2005. Meanwhile global aluminum demand is forecast to grow at a compounded annual growth rate of 5.5% between 2010 and 2015 with Chinese demand growing at 8.6% a year during that period.

China is forecast to increase its aluminum output 34% to 25.3 million tonnes in 2015 from 2011 and will account for 46 per cent of global production up from an estimated 42% in 2011.

Ms Cote said that the company is also transforming its business in order to boost its margin of earnings before interest, depreciation and amortization to 40% over the long term from just above 20% at the moment.

The company aims to boost the Ebitda margin by prioritizing a series of growth projects that includes production expansion and modernization. It will increase its capacity incrementally in areas of high return and pursue Canadian modernization projects that are able to leverage clean and low-cost hydro power generation.

Rio Tinto Alcan sources 64% of its power from hydro generation compared with about 35% average for the global aluminum industry. It is also 51% self reliant for its power needs compared to 35% for the rest aluminum industry.

Ms Cote said that Rio Tinto Alcan's access to bauxite, a key ingredient used to make alumina and indirectly aluminum and access to low cost and clean power generation places it in a strong position to compete with its peers, particularly at a time when the cost curve is rising and steepening due to higher power prices, alumina costs and carbon dioxide costs among other things.