Alcoa eyes changes in aluminum market, with emissions looming as challenge

Bauxite arriving at Alcoa's Wagerup alumina refinery, Western Australia. Source: Alcoa

Alcoa Corp. warned of structural changes in the market for aluminum smelters, amid decarbonization efforts that are posing as a major challenge for more diversified metals and mining companies like Rio Tinto Group.

Executives from Alcoa, the world's largest producer of third-party smelter grade aluminum, said at a Nov. 9 investor day webinar that the company's future depends on the aluminum industry's decarbonization efforts.

Rio Tinto, another major aluminum producer, also placed aluminum decarbonization front and center in October, among its broader efforts to accelerate its carbon neutral goals.

Aluminum currently accounts for 2% of global emissions, and the industry will need to produce 20 times less carbon dioxide to align with efforts to keep global warming below 1.5 degrees C, according to a Nov. 5 statement from En+ Group after a COP26 panel on the issue in Glasgow, Scotland.

About 78% of Alcoa's smelters already operate on renewable power, and the company plans to lift that further, CEO and President Roy Harvey said at the investor day webinar.

Structural changes

Alcoa's chief commercial officer, Timothy Reyes, spoke of structural changes that will contain smelter growth largely due to energy emissions, stemming from China's stated intention to peak carbon emissions by 2030 on the way to carbon neutrality by 2060.

Reyes cited the aim of China's nonferrous metals industry to peak carbon emissions by 2025 and cut carbon emissions by 40% by 2040, its 45-million-tonne cap on production and a reduction in preferential power rates as other key measures set to impact supply.

On smelting, the executive said Alcoa sees a lack of general projects in the pipeline, while the push toward lower carbon products overall will also weigh on the industry's future growth decisions.

On the alumina side, there appear to be enough projects in the pipeline to meet growing demand over the next decade, Reyes said, albeit with the "big caveat" that most of those projects are all coal-based or all backed by coal-based power.

"[Given] the direction that the world is going in and how it's moved over the course of the last year, [this] really starts to put into question the pipeline of refinery projects that exist today," Reyes said.

Future survival

In light of these market conditions, Alcoa's future depends on the success of its Elysis technology joint venture with Rio Tinto that will eliminate greenhouse gases from the traditional smelting process, particularly given its potential cost efficiencies, CEO Harvey said.

Elysis — which was key to the technology roadmap that Alcoa unveiled Nov. 8 — successfully produced aluminum without any direct greenhouse emissions at its industrial research and development center in Saguenay, Canada, the partners announced earlier this month.

Similarly, Rio Tinto's group executive of safety, technical and projects, Mark Davies, highlighted how aluminum was key to accelerating its Scope 1 and 2 emissions reduction targets.

This will be done through developing 1 GW of solar and wind power in Western Australia's Pilbara, where its iron ore operations are located, green energy solutions for the Boyne and Tomago smelters in Queensland and New South Wales, respectively, and introducing an internal carbon price of $75 per tonne of carbon dioxide, Davies said.

Despite having "one of the lowest carbon intensity aluminum businesses in the world," 70% of Rio Tinto's total emissions are from its aluminum, bauxite and alumina operations, Davies said.

Rio Tinto CEO Jakob Stausholm told media Oct. 20 that while the company already uses extensive hydro power for its aluminum smelters, it can only achieve 50% target for 2030 emissions reductions if it makes significant progress on decarbonizing its Pacific Aluminum smelters.

S&P Global Market Intelligence data showed the majority of Rio Tinto's Australian-owned power generation is gas- and oil-fired, and Stausholm said the company will continue contracting renewable power for its aluminum and alumina assets on Australia's east coast in preference to "building and owning it."

Rio Tinto is also evaluating the use of hydrogen to replace natural gas in alumina refineries to cut emissions.

As one of the world's biggest iron ore producers exporting from West Australian mines, Rio Tinto owns 734 MW of operating capacity across its Australian assets, according to Market Intelligence data. This includes alumina refineries and aluminum smelters in Queensland and New South Wales.

Rio Tinto's Australian power generation capacity far outstrips the 260 MW of Alcoa and South32 Ltd., the country's other major aluminum producers. Alcoa's operating capacity and its 120 MW of planned capacity in Australia are all gas-fired, and South32's 195 MW of owned power generation capacity is coal-fired.

While Rio Tinto's planned 34MW solar farm to power the under-construction West Australian Gudai-Darri iron ore project is its only major owned solar project, it also approved a new solar farm and battery storage at its Weipa bauxite project in Queensland in September. Market Intelligence data guarantees coverage of power projects of over 5 MW outside North America.