Rio Tinto (RIO) and Alcan combined in 2007 to form Rio Tinto Alcan, a global leader in the aluminum industry. Its fully integrated facilities include high-quality bauxite mines, large-scale alumina refineries, and some of the world’s lowest-cost aluminum smelters. A sustained rise or fall in aluminum shipments is a significant indicator that affects the stock value of aluminum producers such as Alcoa (AA) and Century Aluminum (CENX).
Alcoa currently forms 2.4% of the Materials Select Sector SPDR ETF (XLB). Investors looking at direct exposure to aluminum can also consider the PowerShares DB Base Metals ETF (DBB). DBB invests a third of its holdings in aluminum.
Rio Tinto achieved a 4% year-over-year (or YoY) bauxite production growth in 2015. This was mainly due to strong performance at Weipa and the ramp-up of Gove. Gove has now reached a production and export capacity of 8 million tons per annum of dry bauxite.
Alumina production also rose 4% YoY for 2015. This was mainly driven by improved productivity at Queensland Alumina and Yarwun.
The company’s record aluminum production at nine smelters offset lower production at Kitimat, as Rio Tinto commissioned a modernized smelter. Kitimat will ramp up toward its nameplate capacity of 420 million tons that’s expected to be completed by early 2016. This would be a 48% rise over its previous nameplate capacity.
Guidance in line with expectations
Rio’s 2016 guidance for bauxite, alumina, and aluminum was 45 million tons, 7.8 million tons, and 3.6 million tons, respectively. This implies a 3%, 0.1%, and 8.4% YoY growth, respectively, for bauxite, alumina, and aluminum.
Going forward, the expansion of the Kitimat smelter’s ramp-up toward nameplate capacity of 420 million tons per year of production should help the company’s aluminum volumes. The smelter is expected to commission in early 2016.
The company is also focusing on value-added products in aluminum, and that should reduce the need for some of its customers to re-melt the material. This change could lead to premium prices. Currently, the aluminum industry is plagued with overcapacity amid weakening demand. This has led many players, including Alcoa (AA), to announce capacity curtailments in 2016. Alcoa released its 4Q15 results on January 11, 2016.
For more on aluminum, you can visit Market Realist’s aluminum page.