Industry Special: Bright future for 'miracle metal'

Alcoa CEO Klaus Kleinfeld shares his thoughts on China's aluminum industry

Editor's note: Klaus Kleinfeld, chairman and CEO of Alcoa - the world's leading aluminum producer - is now participating in the Annual Meeting of the New Champions, or Summer Davos, in Tianjin. A multinational corporation executive with rich experience of growing a business in China, he talked with China Daily about the challenges facing the nation's aluminum industry and Alcoa's latest development in China.

Q: China's economic data has not indicated clear signs of bottoming-out. During Premier Wen Jiabao's inspection tour of Zhejiang province, he warned that the foundation for economic growth is still unstable and that economic hardships may continue for some time. What are your observations on the Chinese economy? What is your outlook for the Chinese 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 mostly self-sufficient, producing as much as it consumes.

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

In China, Alcoa focuses on downstream, fabricated aluminum production that serves those growth markets 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 major energy-saving projects during the 12th Five-Year-Plan period (2011-2015). The projects are expected to 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 also with 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 of coal 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 solve those 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 venture agreement with China Power Investment Corp. How will the joint venture contribute to the future growth 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, but also for China's development goals.

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

We are also developing plans to partner with CPI outside of China, in circumstances where CPI's and Alcoa'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 human history. The most recent news is Alcoa's aluminum fasteners are installed on the Curiosity rover on Mars. How important is that innovation to Alcoa and please elaborate on some of your most innovative technologies or products.

A: Alcoa was founded 125 years ago by Charles Martin Hall, who created the modern-day aluminum production process at the age of 22. His innovative spirit continues to drive Alcoa into the future and also 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-strength fasteners hold Curiosity's structural components together and keep equipment securely attached to the body of the rover. Alcoa is proud to have made yet another significant contribution to a NASA mission.

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-Max and 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 for our "miracle metal". Innovation is in our DNA.

Q: New electrolytic aluminum production site are now being built in China's western regions. We've seen 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, low prices 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 cost curve. 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 fundamental problems, 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 yet to fully develop heat-treated sheet and plate, forging and extrusion capabilities that are needed to supply 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 the Chinese industry.

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

Q: You have been known as a leading multinational corporation executive with rich experience in China. Alcoa has been well recognized by Chinese central and local governments as well as industry authorities. 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 experience China'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 been instrumental 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 with our readers what are the most important leadership traits you have learned through your years as senior executive? What is your management style? What type of environment should a company create to grow and develop future leaders?

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

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

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

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

zhuanti@chinadaily.com.cn

(China Daily 09/11/2012 page13)