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Posts Tagged ‘Alcoa’

Mining Week 01/’12: New year – Same fear

January 7, 2012 Comments off

Top Stories of the Week:

  • Alcoa cuts aluminium production in fear of lower demand
    • Alcoa announced shutdown of 532,000 tonnes of smelting capacity at the top of the cost curve to lower production costs and improve competitiveness. The 12% reduction of capacity mainly hits operations in the USA.
    • Sources: Financial Times; Wall Street Journal; Alcoa news release
  • Potashcorp temporarily closes a third mine because of low demand
    • After recently temporarily closing down Lanigan and Rocanville mines, PotashCorp now decided to temporarily close Allan mine to because of lack of demand for fertilizer. The combined shutdown of the three mines results in approx. 1 million tonnes of potash, or some 10% of the company’s annual production.
    • Sources: Wall Street Journal; PotashCorp Q4 market analysis report; text
  • Unions in Canada and Zambia make their case for wage increases
    • A union representing copper mine workers in Zambia signaled the foreign miners will have to agree to higher salary increases than the average offer of 11% to prevent widespread strikes. At the same time Rio Tinto Alcan and Caterpillar are taking a strong position against unions in Canada by locking out union workers after expiry of the negotiation periods.
    • Sources: Wall Street Journal on Zambia; Wall Street Journal on Canada

Trends & Implications:

    The mining industry for the last 2 years has been and continues to be gripped by 2 paradoxical fears:

  • The fear for slowing demand due to the lack of recovery after the financial crisis – With the financial crisis over 4 years old already the typical macro-economic cycle of 6-9 years has clearly been disrupted. Governments and companies are still operating in ‘crisis fighting’-mode because demand does not pick up like after a regular economic downturn. Large investments are still undertaken because the belief in the long term demand driven by population growth and growth of average GDP/capita is unchanged, but at the same time companies are trying to manage short term lack of demand by scaling down or temporarily closing operations.
  • The fear for strikes and civil unrest resulting from struggling individuals facing mining companies that continue to realize high profits – Despite the financial volatility the commodity prices generally have remained high, making mining companies among the few companies in the world that continue to generate high profits. With people around the world facing the economic crisis and feeling its impact, friction develops between the rich companies and the less well off workers and neighbours.

©2012 | Wilfred Visser | thebusinessofmining.com

Record Copper Prices Prompt Switch To Aluminum

March 17, 2011 1 comment

“If copper prices keep rising, aluminum could end up being substituted for 20% of the global 19 million metric ton annual refined copper market, according to Alcoa estimates. At current copper prices, that figure is 4% to 5%, or about 800,000 fewer tons of copper being used.

Annual copper substitution losses over the last five years have averaged 425,000 metric tons, or about 2% of the market, according to estimates by Anglo-Australian mining giant Rio Tinto PLC. The mining company expects losses to increase to around 3% of the market in 2010 and 2011.

The substitution may end up tempering copper prices somewhat. But most see prices generally trending higher as burgeoning demand from the recovering global economy is expected to outstrip mine supply, leaving industrial companies and their customers in the lurch until they can find substitutes.”

Source: Wall Street Journal, March 17 2011

Observations:

  • In developed markets each car contains some 20 pounds of copper, currently worth close to $100. About 65% of copper is used for electrical appliances, the bulk of the rest is used for construction (roofing, plumbing).
  • Both in construction and in electrical appliances copper can be replaced by other metals or conductors, most often aluminium.

Implications:

  • Substitution of copper causes a 2-3% loss of market annually, which is more than set off by growth of the customer industries. However, as potential for replacement is high (up to 40% in cars and similar appliances), high copper prices will certainly trigger the manufacturing industries to speed up their research.
  • In the long term the increasing percentage of copper that is recycled has a large impact on the global demand for mined copper. Especially if growth slows down the recycling stream will to gain market share vs. miners.

©2011 | Wilfred Visser | thebusinessofmining.com

Mining companies fail to use YouTube

December 22, 2010 1 comment

YouTube has over 2 billion views per day. It is the world’s second largest search engine. It hosts more video material than has ever been broadcasted on television. Consumer goods companies use YouTube to scan for trends, market their goods and interact with potential customers. Still, mining companies fail to use YouTube.

Why should mining companies use YouTube?

Establishing a presence on YouTube can be a very effective tool in managing public opinion about the company. The YouTube user is not the investor or the business partner, but the average person using the mined goods. Mining companies are traditionally trying to hide from public attention. Most attention is negative attention, focused on environmental destructiveness and corporate greed. However, communicating with the world out there would help to make more people realize the relevance and the challenges of mining and at the same time serve as a way to gather feedback about the perception and public issues around the company. The public opinion has been a powerful weapon in the mining industry this year in both the decisions about mining tax changes in Australia and BHP Billiton’s attempt to acquire PotashCorp. YouTube can be a powerful  tool to influence public opinion.

How are mining companies currently doing?

The lack of use of YouTube by the world’s largest mining companies is shocking. Out of a list of ten of the world’s largest mining companies only 3 have established a YouTube channel (Anglo American, Rio Tinto, Vale); 5 appear to have claimed their channel’s name (Teck, Vedanta, Alcoa, Newmont, Freeport McMoRan), but are not yet using it, potentially because he name has been ‘hijacked’ by a proactive YouTube user. This is clearly the case for the remaining 2 companies (BHP Billiton and Xstrata). Their channels are broadcasting video material totally unrelated to the mining industry. Almost all of these firms have video material available on their websites that could easily be used to communicate on YouTube. The companies certainly do have a presence on YouTube: many videos about the companies have been posted by journalists and activists.

The performance of the 3 companies active on YouTube diverges widely. Anglo American started the channel in November 2010 and has posted 1 video about HIV Aids. Rio Tinto made a promising start in the summer of 2009 by uploading 10 videos about various topics, but the last visit date of the account owner is 7 months ago. Still, the videos have been viewed almost 400 thousand times in the past year. Vale has opened a comprehensive YouTube channel. The page and most of the videos are in Portuguese, but this makes sense when considering the geographic location of most of Vale’s operations. A point for improvement is the use of the channel to interact. The company has disabled the option to comment on the videos, making the channel a pure broadcasting station.

The importance of interaction

Simply broadcasting videos on YouTube is not the optimal way of using the site. People will react, and the reactions shape the public opinion. Responding quickly to the reactions gives an opportunity to show empathy, present the facts and win critics over. Below an example of reactions on Rio Tinto’s YouTube channel:

What happens when polluting industries find themselves surrounded by housing development? People get sick, the companies won’t move. This is the situation in Kilburn, South Australia, right now.

Rio Tinto may be a ‘leading mining company’, but it is also one with one of the most appalling international reputations. Type ‘bougainville’ + ‘mercenary’ + ‘RTZ’  into google to find out about their connection to atrocities in Papua New Guinea after the natives refused them permission to mine.

The reaction of Rio Tinto to these comments? Complete silence.  Missed opportunities to explain the company’s position to important opinion makers.

A 5-step guide for Mining Companies to start using YouTube

What should mining companies do to use the potential of YouTube?

1. Appoint a Content Manager – Appoint the person that will be running the show. The Content Manager should not just be responsible for selecting and managing the broadcasted content, but should also be responsible for participating in online discussions and answering to comments.

2. Explore the environment – Don’t plunge into uploading videos without finding out what is going on on Youtube and defining the strategy of content type and structure. For example, most likely YouTube users are much more interested in the environmental performance of the company than in the latest profit figures.

3. Establish a presence – Upload videos, add tags, select favourite videos featuring the company from other sources.

4. Monitor environment and reactions – Don’t only read the comments on the uploaded video’s. Do the same the YouTube user will do: search for information about the company; click-through to related videos; gather all user-generated content about the company.

5. Interact – Respond to both positive and negative reactions. Invite critics to explain, explain the situation and the facts. Feed the most important topics found online to the executive and marketing team.

©2010 | Wilfred Visser | thebusinessofmining.com

Alcoa: Aluminium demand will outstrip supply

November 18, 2010 1 comment

“Aluminium supplies will struggle to meet surging global demand over the next decade, leading to price rises, according to the head of Alcoa, the world’s largest producer of the metal.

Over the past 20 years, aluminium demand grew an average 3.4 per cent a year, made up of 15 per cent annual growth in China and 1 per cent in the rest of the world. Alcoa believes that over the next decade, even with slower demand in China, global demand can grow 6.5 per cent per year, doubling total use by 2020.

Later in the decade, he adds, it is likely to be increasingly difficult to find new high-quality mines to produce bauxite – aluminium ore – and sites for new refineries and smelters.

‘The constraint will not be capital – the money will be there – but the availability of these high-quality assets’ he says.”

Source: Financial Times, November 17 2010

Observations:

  • Aluminium is growing in importance as building material and in parts for transportation because of the low weight characteristics. However, polymers and composites might become available as low cost substitutes, increasing the risk of aluminium investments in the long term.
  • Mr. Kleinfeld, Alcoa’s CEO, is one of the persons in the industry that is most active in commenting on capacity issues in the industry. Last year and early this year he warned for potential overcapacity in the short term, warning for undercapacity in the long term in his latest conversation with the Financial Times.

Implications:

  • Timing of development is going to be the key to success in the bauxite mining industry. The competitive move of building production capacity early will discourage competitors to increase capacity in fear of overcapacity and low prices. However, increasing capacity too early might cause losses in early years of operation. Securing access to potential capacity will be the focus of business development in the next years.
  • The comments of mr. Kleinfeld can be seen in the light of the underperformance of Alcoa’s shareprice. Convincing investors of the long term prospects of the industry is crucial for the executives.

©2010 | Wilfred Visser | thebusinessofmining.com

Alcoa bets on operating cost cuts

June 24, 2010 Comments off

“…the company is spending $1.5 billion to create a new, low-cost bauxite mine. The aluminum maker hopes that by spending now it will be able to become a lower-cost producer once the economy finally stabilizes.”

The issue of when, where and how much company cash to spend is a puzzle for top metal and mining executives during the best of economic times. But adopting either a save or spend strategy is critical for a company like Alcoa in this tough economic environment, because for years it has lost ground to more nimble and efficient competitors Rio Tinto, UC Rusal and to small upstarts.

Source: Wall Street Journal, June 22 2010

Observations:

  • Alcoa has developed a new high-grade bauxite mine in the middle of the Amazon rain forest. The development cost approx. $1.5 bln.
  • Due to a 60% decrease in aluminium prices, net income of Alcoa has been negative for the past 2 fiscal years. However, the company has managed relatively well to bring operating costs down.

Implications:

  • Vale recently sold its Brazilian aluminum operations to Norsk Hydro because of the high risk associated with energy price volatility. Alcoa will have to prevent being hit by high energy prices or black-outs by executing the energy-intensive aluminum production process in other parts of the world.
  • Alcoa’s CEO Kleinfeld chooses to invest anti-cyclical, contrary to what many competitors are doing. If the balance sheet allows so, this is generally seen as a good strategy to capture market share. However, Alcoa has only some $1.5 bln in cash, which will make it hard for the company to continue the high level of investment.

©2010 – thebusinessofmining.com

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