Alcoa 1996 Annual Report Download - page 18

16
Acquisition in Brazil. In March
of 1996, Alcoa Aluminio pur-
chased Alcan’s soft-alloy extru-
sion and distribution business
in Brazil, adding a nominal pro-
duction capacity of some
60,000 mt per year. The acquisi-
tion represented a one-time,
cost-effective opportunity to
consolidate Aluminio’s leading
position in extrusions for the
Brazilian market. Eight months
after the purchase, one of the
plants involved received ISO
certification, and another
earned a three-year renewal of
its ISO 9002 certification.
French Connections. Alcoa
Aluminio and Alcatel of France
formed a joint venture to
manufacture and sell telecom-
munication cables and related
accessories in South America.
The venture, called Alcatel
Cabos Brazil, is owned 60% by
Alcatel and 40% by Alcoa
Aluminio. It will provide a
complete line of fiber-optic and
copper telecommunication
cables from a manufacturing
facility in São Paulo.
The Alumina Business
Major Contract in China Fits
Long-Term Strategy
In late 1996, Alcoa World Alumina and Chemicals (AWAC) surprised
the industry by announcing a 30-year contract with
the government-owned aluminum company in China.
The agreement covers the purchase of 400,000 metric
tons (mt) of alumina a year by China National
Nonferrous Metals Industry Corporation (CNNC).The
latter will pay an advance lump-sum payment of
$240 million to AWAC related to the agreement and
per-ton payments as shipments are made. CNNC also
has the option to increase its alumina purchases.
AWAC is a global alliance between Alcoa and
WMC Limited. It’s the world’s leading alumina producer,
currently shipping some 10.6 million mt per year.
Nine-tenths of that is sold to aluminum smelters, some
in Alcoa but a majority to third parties.
An Important Step
Commenting on the contract in China, Alcoa World
Alumina President Robert F. Slagle said, “This new
relationship with CNNC represents an important step
for AWAC in growing our global business and confirms
our commitment to the Chinese alumina market
and to CNNC.”
He said the contract is consistent with AWAC’s
strategy of selling most of its alumina under term
contracts. These minimize the exposure of buyer
and seller alike to the sometimes severe price
volatility of the spot market.
Responding to Demand
In addition to taking the long view, the strategy calls for making production
decisions based on market demand. AWAC curtailed 350,000 mt of production
in 1996 and has additional capacity on the sidelines in St. Croix, Brazil, and
Point Comfort, Texas.
As aluminum production grows worldwide — as it’s growing now in
China — AWAC will be able to activate additional supplies of smelter-grade
alumina and, in fact, has plans for further expansion of refining capacity
when the demand emerges.
Sinval Lizardo making
fiber-optic cable.