A Look at Rio Tinto’s Aluminum Production in 1H16



Aluminum production

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.

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Strong production

Rio Tinto achieved a 9% year-over-year (or YoY) bauxite production growth in the first half of 2016. This was mainly due to a strong performance at Weipa (up 3%), Gove (up 23%), and Sangaredi in Guinea (up 22%).

Alumina production also rose 6% YoY for the first half of 2016. The second-quarter production was even more robust, with Yarwun’s production up 18% YoY due to design and process improvement initiatives.

The company’s aluminum production was also higher by 10% YoY in the first half of 2016. The modernized and expanded Kitimat smelter started delivering at its full nameplate capacity.

Guidance maintained

Rio’s 2016 guidance for bauxite, alumina, and aluminum remains unchanged at 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.

The company is also focusing on value-added products in aluminum. That should reduce the need for some of its customers to remelt 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 report YoY earnings declines in 2Q16.

For more on aluminum, you can visit Market Realist’s aluminum page.


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