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Alcoa keeps all options open in expanding Chinese market

(chinadaily.com.cn)
Updated: 2009-09-11 01:23

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Although the highly anticipated stake purchase of Rio Tinto went in vein, Alcoa is positive about additional opportunities to seek global mergers and acquisitions (M&A) with Chinese partners, Alcoa CEO Klaus Kleinfeld released to China Daily Thursday. 

“I am not happy with the result (of the negotiation with Rio Tinto), but it is a good start. We want to help Chinalco go abroad,” Kleinfeld addressed to China Daily on the sideline of ongoing Summer Davos Forum in Dalian, Liaoning Province. 

“We will still look out for opportunities for international mergers and acquisitions (M&A) jointly with our Chinese partners.”  

Besides overseas-oriented M&As, it seems that Alcoa is busy streamlining and reshuffling its China operation, focusing on its traditional strengths, while cutting back arms not in a leading position. 

The selling of the Shanghai foil plant is an example initiated from that consideration. 

Alcoa hammered out a stake-transfer agreement with Yunnan Metallurgical Group in August, letting the Chinese company take over its Shanghai foil plant. 

Alcoa leads the aluminum industry, in term of 90 percent of its product portfolio. And the aluminum supplier is determined to keep its winning streak in China, while abandoning those no in up-leg positions, according to Kleinfeld.

Alcoa’s Qinhuangdao plant tells a totally different story, in contrast of the Shanghai foil facility. 

Alcoa’s Bohai facility in Qinhuangdao officially went on stream yesterday, rolling out lithographic plates, which lead the industry and replace import in the Chinese market. 

The lithographic line is said to be the world most sophisticated and hi-tech line with a high quality standard and high speed.  

Once operated in a full capacity, the line will give Chinese clients the access to quality plate at lower cost, Kleinfeld said, proudly. 

With some investment projects operating in China, Alcoa is also eyeing for other opportunities working together with Chinese industrial players.  

Concerning possible partnerships with local companies in the pipeline or under consideration, Kleinfeld named the potential technical cooperation with BYD Auto, the electric car maker based in Shenzhen. 

Using a considerable amount of aluminum in automobiles will effectively improve fuel efficiency and reduce emissions of greenhouse gas, according to the Alcoa boss. 

Alcoa’s possible partnership with BYD Auto is expected to be based on technical terms at the current stage. Kleinfelddid not exclude the possibility for Alcoa to deepen the level of cooperation with the electric auto maker. 

As China is a country with a large population, the transportation tools such as trains, automobiles and other traffic tools will be frequently used. If aluminum is widely used in these transportation tools, the discharge of the greenhouse gas will be greatly reduced and energy efficiency enhanced, Kleinfeld contended. 

Aluminum can account for as high as 90 percent of the material for manufacturing automotives in overseas markets Alcoa serves. The percentage stays at present very low in China. But the situation has started to change.  

The global integrated aluminum maker has launched some pilot projects, such as the environment-friendly sample bus jointly developed with Yutong Bus, in China to showcase the advantage of making automotives of aluminum. And the market reaction is quite positive. 

Moreover, with the price for iron keeping soaring, the cost gap between aluminum and steel as auto producing materials will further narrow down. 

Despite being a global industrial leader both up-stream and down-stream, Alcoa has not yet established its upper-steam facilities here in China, ignoring the cliché that no fabrication business can succeed without local up-stream leadership. 

Alcoa operates at a global basis, and the company has a strong local partner Chinalco. Both the two elements help feed Alcoa’s operation in China. Therefore Alcoa does not have to set footprint in every segment of the industry in China, especially those energy-intensified up-stream segments, according to Kleinfeld. 

The Alcoa CEO admitted that the global setback had melt down business orders for Alcoa both abroad and in China. The market demand was sluggish while the price plumped dramatically. 

The aluminum price has never plummeted by such a wide margin as 60 percent, which results in Alcoa’s 2nd quarter losses – the third in a row, which has never occurred since 1992. 

Kleinfeld told China Daily that the commodity price plummet, triggered by the economic recession, was the biggest challenge confronted him ever. 

To combat the unprecedented challenge, Alcoa has spared no efforts, trimming inventory, raising capital, increasing cash flow, and cutting jobs. 

In addition to internal efforts, Kleinfeld accredited the fiscal stimulus package supplied by China for the gradual business recovery of Alcoa China. 

The Chinese Government has acted fast, decisively and effectively in terms of combating the economic recession, by offering a super-sized fiscal stimulus package, which works well to drive local consumption and facilitate production, Kleinfeld contended. 

With the stimulus efforts, Alcoa witnesses its China operation benefiting from rebounding market demands. 

Alcoa expects China’s consumption of aluminum to rise 4 percent this year, compared with its earlier prediction of zero growth, because of demand triggered by stimulus spending, Kleinfeld said earlier.

 

Video: Li Qiao

Story: Wang Yu