China supply cuts will spark new investment in aluminium, says Rio

China’s efforts to streamline its aluminium smelting capacity represent a “fundamental change” that will spark fresh investment in the global industry, the head of Rio Tinto Group’s aluminium division says.

“There’s no doubt that we are at a turning point in China when it comes to the aluminium business,” Alf Barrios said.

“We’re seeing China likely to become more broadly balanced in aluminium instead of being a net supplier,” he said.

New capacity outside China would probably be required within a few years to meet strong global demand, he said. Rio was looking at options to expand its footprint in smelting and bauxite production.

China, which produces more than half the world’s aluminium, mounted a campaign in 2017 to shutter idle and unlicensed smelters. It cut 3.8-million tonnes of capacity from smelters commissioned in the last five years, Barrios said.

Global aluminium stockpiles had been reduced to 10 weeks of supply, compared with 15 weeks in 2011, he said.

Rio expected the latter to approach seven or eight weeks by the end of this decade. The company expected growth in global aluminium demand would be 4% a year, fuelled by the motor vehicle industry.

Near-term that meant some smelting capacity would likely be brought back online, in China and beyond, but by 2020 that was unlikely to be sufficient to meet demand, Barrios said.

“We have time to get ready for it, but it’s important we start in earnest understanding what the potential opportunities are and how do they stack up versus each other,” Barrios said. Canadian operations were at the bottom of the cost curve and were attractive given the premiums paid for North American aluminium, he said.

Rio was dusting off various brownfield investment options, including expansions of the AP60 and Alma smelting operations in Quebec, he said.

“There are not many companies that have the position we have in Canada to capture that growth going forward.”

Also in Quebec, Rio was completing a study on measures that would extend its Vaudreuil alumina refinery beyond 2022 and was considering extending its Arvida smelter to 2025, he said.