Recasting Alcoa

A brutal drop in aluminum prices required an equally brutal remake of the company

By Kathleen Kingsbury / Quebec Monday, Nov. 08, 2010
    • Photograph by Eamon MacMahon for TIME

    On the line Removing old anodes, caked with cryolite, at the Deschambault smelter

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    Yet on the manufacturing side, the chemical process to produce aluminum hasn't changed in a century. At smelters worldwide, raw bauxite and petroleum coke are purified into alumina. Alcoa either sells this intermediate in its powdery form or heats it to up to 516 degrees C and, using electric anodes, separates out oxygen to yield aluminum, which is poured into ingots and shipped to customers.

    Any adjustments had to net real savings. The Deschambault smelter was on the front lines. Its Center of Excellence, which tests new procedures and equipment, was opened in 2008, and 33 potlines are now dedicated to pilot projects. It was not a friction-free process. When engineers in Pittsburgh figured out a way to use a cheaper, less pure coke to save money, the potline operators at first resisted. They were the proud masters of the process, not those lab coats in Pennsylvania. But when faced with the stark prospect of either making the cheaper coke work or not working, they got it done.

    An even simpler example: in a crane high above the plant floor, assistant technician Patrick Marcotte follows the steps posted in his cab to change electric anodes in the baths, punching small, precise holes in the pots' crust of bauxite and cryolite rather than smashing it to bits. The switch saves Alcoa thousands of dollars a week. Plant manager Martin Briere says, "Before, changes would have eventually happened, but the crisis made it so returns must come faster, better and cheaper."

    When the recession hit, Alcoa and others found themselves stuck with bloated inventories. No more. Now Alcoa maintains as close to zero inventory as it can, which a more efficient manufacturing system makes possible. "We're casting on orders and sales, not inventory, to ensure we're selling all metal made," says Louis Dufour, a casthouse process engineer. "Our floor is empty at the end of the week."

    Speed has become essential in distributing best practices. STARprobe, for instance, will be deployed at 12 locations by December. "Benchmarking is happening constantly," says Moustapha Mbaye, an Alcoa vice president who runs the Center of Excellence. "As soon as the best practice becomes standard, we push the envelope forward."

    Not resolved, however, is an identity crisis Alcoa has faced for years. Should it concentrate on primary manufacturing — producing and supplying aluminum? Or should it be more focused on value-added product lines such as wheel casings and airplane fasteners? The answer seems an easy one. Engineered products brought in $4.7 billion in sales last year. Plus, Alcoa's other option means competing head to head with China, which produced 55% of the world's primary aluminum in 2009. Or Russia, which has a cost advantage in energy — and aluminum manufacturing requires gobs of electricity.

    Nonetheless, most outside observers favor the primary option. "Yes, Alcoa needs to close more of its older smelters," says Deutsche Bank analyst Jorge Beristain. "But there are a lot more barriers to entry to opening a smelter than punching out beverage cans."

    Alcoa's fortunes are tied to the price of aluminum, which Chinese producers have depressed for years. But the Asian giant's interest in smelting appears to be waning because of energy costs and expensive raw materials. "The Chinese want to get away from the basics and produce more-upscale, specialty metals like alloy steel," says Chuck Bradford, a metals analyst at Affiliated Research Group. "Or they'd rather make aerospace products or litho sheets, which use recycled scrap and require 5% of the energy."

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