Aluminum Demand to Rise Four Per cent a Year Over Next 20 Years: Rio Tinto Alcan

Aluminum Demand to Rise Four Per cent a Year Over Next 20 Years: Rio Tinto Alcan

MONTREAL - Rio Tinto Alcan remains committed to invest billions in key projects in Quebec and British Columbia, but the aluminum giant wants to see where demand settles over the next few quarters before giving them a green light.

"We want to see two to three quarters how the demand will be and then we'll be in a better position to assess and make the decision," chief executive Jacynthe Cote said Friday.

Among the projects is a $2-billion smelter expansion in Kitimat, B.C., and three Quebec projects. It plans to build a pilot plant using its AP50 technology in Saguenay, expand the Alma smelter and build a high-efficiency turbine at its at its Shipshaw power station.

It spent about $200 million last year to keep the projects progressing until a final decision is made.

No timeline was provided, but the projects valued at between $5 billion and $7 billion will resume later than the company had expected early in 2008, she told reporters.

Of concern is whether aluminum prices and demand, especially by the key construction and automotive sectors, will falter once government stimulus spending ends.

"That's why governments have to be careful to not give up until we are clearly out of recession."

Cote said the industry is on the path to recovery and expects aluminum sales will rebound to pre-recession levels within three years.

Cote, the head of the aluminum division of the global mining giant Rio Tinto PLC (NYSE:RTP), says Chinese demand has largely been restored, but the situation in industrialized countries could still take some time.

"We think 2010 should be a good catch-up year given what we've seen in 2009."

Over the next 20 years, demand should grow by about four per cent annually.

"This forecast is a very reasonable one. After all, if there's one sector with enormous growth potential, it's the aluminum industry," Cote said in a speech to the Montreal Board of Trade.

Cote said the industry's recovery will be aided by the growing urbanization and industrialization of the developing world.

India's per-capita demand for aluminum is only five per cent that of industrialized countries. Chinese demand is half the 20 kilograms per person that used in the West, but is expected to double in a decade.

Demand in industrialized countries should grow by two to three per cent per year.

Cote said Montreal-headquartered Rio Tinto Alcan is poised to benefit because of its fully integrated assets, its low-cost electrical supply and its advanced technology.

"We have the good fortune to be able to produce electricity here from clean, renewable resources," she said.

"I am convinced that this advantage and our great talent for innovation will enable us to continue to meet the changing needs of international markets."

Cote urged the Quebec government not to dramatically increase electricity costs in future contracts. Several ministers have recently discussed hiking electricity rates, particularly for residential customers. Industrial rates are very low to attract companies and held create jobs.

Competitive power costs are needed to ensure the industry and Rio Tinto Alcan remains competitive, Cote said.

The last year has been tough on Rio Tinto Alcan, even though its Canadian workforce has been relatively unscathed.

The parent company cut 14,000 workers around the world, including 1,100 aluminum jobs, as it adjusted to lower metal prices and demand. Up to 140 positions were eliminated at its Montreal headquarters.

The closure Beauharnois smelter and output reductions at the Vaudreuil alumina refinery in the Saguenay region, affected 300 jobs in Quebec. Retirements allowed it to largely avoid layoffs.

Rio responded to plummeting aluminum prices and a dramatic drop in demand by cutting its costs by 25 per cent as of June to preserve cash and avoid adding to global overproduction.