Alcan boss talks shop

So far, so good.

That was the message of Rio Tinto Alcan boss Paul Henning’s State of the Union address to municipal council on Monday, May 3.

The aluminum giant’s vice president of BC Operations and Strategic Projects was on hand to discuss current activities of the Kitimat smelter with local politicians.

After discussing aluminum prices and supply on the world market, talk turned to the long-awaited Kitimat Modernization Project slated for the facility.

Henning told council that project delays have been “both positive and frustrating” as it has allowed for blueprint evaluation, which resulted in a layout change of four buildings aligned north-south rather than six pot lines aligned east-west. The fresh layout will be easier to build and maintain.

This month, construction is slated to begin on an anode pallet storage facility which Henning described as a “transition zone” meant to house interface between pot rooms and carbon facilities. The goal is to have the building up this summer to allow for the facilitation of other construction operations over the winter.

“This is the first official construction of KMP’s assets on site,” Henning said, calling it great news. Cost of smelter modernization is reported at $2-billion with construction to last over two years.

Councillor Rob Goffinet was equally excited, telling Henning: “we perceive this as the basis for our whole community.”

But Henning said 2010 would continue to be a challenge for aluminum producers despite signs of economic recovery as global inventories soar, keeping the lack of confidence in the market alive.

Henning recently returned from a customer-based trip to Japan with BC Operations director Tino Pereira, where they asked their clients for their thoughts on the future.

“In all cases, they said so far, so good,” Henning reported, but they remained unsure of what the year could bring.

Last year’s global recession saw metal prices drop in half alongside a large increase in the world’s total metal inventories.

Henning said the total global inventory could currently fuel 18 weeks of global consumption, while typical rates are about half that. The enormous amounts of aluminum in the system is restricting confidence in primary producers to come back at full production, Henning told council. Price per tonne of metal also declined.

Changes to demands have even forced Rio Tinto Alcan to close smelters in Quebec and the United Kingdom.

Henning said the local smelter attempted to balance its production with the market, reducing production the untraditional way by “allowing pots to fall as they fell without replacement.”

While difficult to manage, “it meant we hadn’t closed temporarily or permanently any of the Kitimat facility,” he said. “We still feel today that that was a significant decision and the right decision.”

However, Henning admitted that the facility lost money in early 2009 for the first time in the history of the combined plant.

To cover the shortfall, cost cuts of $40-M were attempted, mainly through employee overtime reductions.

The smelter was able to streamline its employee base by not replacing retirees as the company aims to land at 1,000 employees post-modernization.

“We are not standing still,” said Henning. “The goal is to be ready for KMP.”

He lauded his employees for achieving a recent world-class safety standard with only one injury listed this year to date, calling this statistic the key to modernization.

“We can have the best megawatt price in the world. We can have the most technologically-advanced smelter in the world. But if we have a workforce that can’t run it and can’t run it safely, we haven’t got anything,” Henning said. “This is the ultimate foundation that KMP will be built from.”

Councillor Gerd Gottschling asked Henning why he would not commit today to the project, as the Kitimat smelter seems to have everything going its way including the “cheapest power in the world” and “finest workforce.”

“Cash,” Henning responded, before saying he could not speak for the board.

“The board will make that decision,” he said. “They see the total company. I only see a small portion. All we have to make sure is we’re ready when they make that decision.”

Last month, RTA CEO Jacynthe Cote told the Canadian Club in Montreal that the company would not rush any projects until a clearer picture of economic stability emerges following the recent global meltdown.

Henning also added that while environmental compliance was a challenge for the smelter at times last year, the plant has been up to standard since October.

Fluoride emissions will be reduced further post-modernization.