Alcoa 2006 Annual Report Download - page 5

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was born from the discoveries of Charles Martin
Hall. We continue in that spirit of discovery today.
We have the largest aluminum research facility in
the world and it is staffed with preeminent scientists
and researchers dedicated to discovering and develop-
ing the next product solution, the next process
improvement. This year we strengthened our global
research connection with research centers in Russia,
China, India and Europe, and U.S. universities.
As you’ll see throughout the pages of this Annual
Report, we are bringing a number of innovations to
the market. Examples include:
• Bauxite residue neutralization which provides sig-
nificant greenhouse benefits by permanently locking
CO2with the residue. This process will be taken to
all our alumina plants in the near future.
• Simultaneous Multi-Alloy Casting or SMAC. This
is a protected technology in the flat-rolled product
businesses leading to significant cost reduction.
It also expands the product range to multialloys in
the same cast.
• Continued work on the inert anode and carbothermic
initiatives for the primary business and increasing
yields in refineries. In addition, we are undertaking
a major effort aimed at
reducing overall energy
requirements.
We are excited about our
achievements in technology and
even more with what lies ahead.
Building for the Future
The future of aluminum, and
our markets, is quite bright.
The annual global
consumption of aluminum
products, both upstream and
downstream, is expected to
double over the next 15 years.
This consumption boom will be driven primarily by
growth in China, India, Russia and Brazil, whose
demographics are accelerating development. Asia
alone will account for 60 percent of the growth and,
by 2020, will consume as much aluminum as the
entire world does today.
China aluminum consumption increased more than
20 percent in 2006. Outside of China, consumption
increased a solid three percent. In fact, in industrialized
markets such as the U.S. and Europe, consumption in
2006 grew six and three percent, respectively.
To meet this demand will require an industrywide
growth rate that is three times that of the last 20 years.
Assuming all of today’s capacity across the entire
industry stays online, which is not likely, it would
require nearly 80 new smelters of 400,000 metric
tons (mt). That means adding five smelters each year,
or 2 million mt annually across the industry…not to
mention the required refining and bauxite mining and
fabricating facilities.
The same underlying growth rate trends can be
seen in aerospace, transportation, defense and energy
generation. This drives the demand for our engineered
products and solutions, flat-rolled products, and,
eventually, our consumer products.
We’re certain that now is the time to pursue our
growth objectives to meet this demand. The time to
build is when the market is good and we have strong
cash flow.
Cash from operations in 2007 will fund our
planned capital expenditures. We will be investing in
improved competitiveness and meeting market
growth in our profitable businesses. These are the
right strategies and the right time for us.
Our upstream growth projects remain on track
and we are evaluating a number of new opportuni-
ties. We completed the upgrade of the Pinjarra
refinery this year in Australia, adding 657,000
low-cost metric tons per year (mtpy) to our system.
We also are expected to complete a 146,000-mtpy
expansion at our Jamalco refinery in Jamaica. In
Brazil, construction is underway on a bauxite mine
in Juruti and an expansion at our São Luis refinery.
Both will be online in 2008.
Also in Brazil, we completed a 63,000-mtpy
expansion at the Alumar smelter. Perhaps the most
significant growth project, the Alcoa Fjar aál smelter
in Iceland, is on-target to produce its first metal in the
second quarter of 2007. It is significant because it is
our first greenfield smelter in 20 years. The work that
has been done to date has been remarkable…made
all the more so by the safety records that have been
achieved. When completed, this facility – powered by
World Aluminum Consumption to Double by 2020
M tons
2005: 31.6
2020: 60.6
1.7
5.0
10.8
11. 6
31.5
13.2
1.1 3.2
6.8
7. 3
Asia +18.5
+4.4
+1.9
+4.1
+0.6
North America
Eastern Europe,
CIS & Other
Western Europe
Latin America
Increase
v. 2005
Source: McKinsey