Klaus Kleinfeld, chairman and CEO of Alcoa, has participated in the Annual Meeting of the New Champions - or Summer Davos - for five years in a row. Always a heavyweight speaker at the forum, he shared some of his insights with China Daily before he speaks to the meeting that opens today.
"Meeting the Innovation Imperative" serves as the theme of this year's Annual Meeting of the New Champions. How important is innovation to your company and China's economic development?
Science and innovation are at the core of what we do at Alcoa. Our commitment to keep advancing what we make and how we make it has allowed us to remain an industry leader for the past 125 years.
Since inventing the process for producing aluminum, Alcoa has been innovating new and better uses for the metal. Combining our expertise in how materials can work together with structural and design innovations, we help produce some of today's highest-tech products - from parts for advanced jet engines to sheets for the most sought after cars and consumer planes.
China's economic development over the last 30 years has been extraordinary, and its continued growth will be driven by innovation. Alcoa has been and remains as committed as ever to being part of China's growth story.
We have invested more than $800 million in China since 1993, making us the largest foreign investor in the country's aluminum industry. And we continue to focus on producing high-end fabricated aluminum products in China, through partnerships with China Power Investment Corp, Commercial Aircraft Corp of China and through our new Alcoa wheel production facility in Suzhou.
Chinese Premier Li Keqiang reiterated that China needs to upgrade its economy. What's your view on that? What challenges or opportunities will it bring to the aluminum industry and Alcoa?
Led by President Xi and Premier Li, China has set out a vision for an upgraded economy focused on providing high-value goods and services, with a greater focus on urban and environmental sustainablity.
China's rapid growth during the last 30 years has lifted hundreds of millions of Chinese out of poverty, built world-class cities, and fostered globally competitive businesses. It also has left China with structural challenges and environmental degradation. Tackling these challenges are key to China's future growth.
At Alcoa, we see opportunities as China upgrades. Alcoa is well positioned to be part of China's transition and to capture new opportunities.
China's overcapacity problem in the aluminum industry has worsened in the first half of this year because of new production capacities. How does this affect the industry and your company? Do you have any suggestions for the Chinese government to curb overcapacity?
China and the rest of the world operate as two separate aluminum markets. The Chinese aluminum market is largely self-contained, producing enough aluminum to meet its own needs and therefore not exporting.
While China's aluminum supply and demand is essentially in balance, we estimate that 41 percent of its smelting capacity is unprofitable because of low aluminum prices and the high cost of the system. The Chinese government is taking steps to try to curb overcapacity, but it is not easy to decommission large, complex facilities.
We have experience in repurposing aluminum plants into new commercially successful businesses. It takes commitment and clear vision by government and close cooperation with business to be successful. Alcoa is also open to exploring opportunities abroad with Chinese partners, which would further help minimize the domestic environmental impact of the industry. We have already established a strong relationship with China Power Investment and look forward to growing that effort in coming months.
In May, Alcoa announced cutbacks in production. What drove this decision?
Prior to our May announcement, Alcoa had 13 percent or 568,000 metric tons of idle smelting capacity.
And given current economic conditions, we announced in May a review of an additional 11 percent or 460,000 metric tons of smelting capacity to maintain our global competitiveness in a weak aluminum price environment and to achieve our goals of moving down the aluminum and alumina cost curves.
We are focusing our efforts on higher-cost facilities and plants that have long-term risk due to energy costs or regulatory uncertainties.
Since May, we have announced decisions to close or curtail 269,000 metric tons, which represent over 50 percent of the capacity under review.
In addition, we have invested in low-cost capacity such as our Saudi Arabia joint venture project, implemented cost reductions in our operations and made continued productivity improvements at all of our smelters.
While we are competitively positioning our upstream business to win in a challenging commodity market, we also are growing our value-added businesses to capture significant growth opportunities.
In the first half of 2013, more than half of Alcoa's revenues came from our value-added businesses, which supply high-tech aluminum products to the aerospace and automobile industries, among others. Global demand for aluminum across our end markets - including aerospace, auto, building and construction and industrial gas turbines - continues to grow, year after year, and Alcoa is well positioned to meet that demand.
Your company focuses on the downstream sector in China. Will you continue this strategy?
We have historically seen greater opportunities in the downstream business as China moves toward a more consumer-led economy, builds out its transportation infrastructure and looks for ways to reduce energy consumption.
Our existing business supports the growing packaging, automotive and aerospace sectors. We see growing potential in the downstream, so in December 2012, Alcoa Wheel Products opened a new aluminum wheel production facility in Suzhou. This expansion creates a full wheel manufacturing, distribution, sales and service network in China to capture growth in the Chinese commercial vehicle market.
In the aerospace fastener market, we have a strategic and commercial agreement with Commercial Aircraft Corp. This agreement deepens Alcoa's existing partnership and reinforces Alcoa's presence in one of the world's fastest-growing aerospace markets.
We also see a tremendous opportunity to partner with China Power Investment to produce high-end fabricated aluminum products for the growing aerospace, automotive, commercial transportation, consumer electronics and packaging markets in China.
The Chinese government is focusing on sustainable development. What is your view on corporate social responsibility at a large multinational like Alcoa?
Sustainability is an integral part of Alcoa's operating practices and the product design and engineering we provide to customers.
As a business leader, I focus on driving our company's competitive advantages while mitigating risks. Alcoa's focus on sustainability - through increasing the energy efficiency of our operations, reducing greenhouse gas emissions and manufacturing environmentally friendly products, for example - is key to achieving our goals.
We focus on providing long-term benefits to all stakeholders including shareholders, employees, customers, suppliers and the communities in which we operate.
Through our sustainability efforts, we continue to show that the value of aluminum - lightweight, non-corrosive and infinitely recyclable.
In China, we are actively engaged with local government and business leaders to help the country meet its sustainability goals.
The Alcoa Foundation, for example, has sponsored the World Resources Institute's project to establish a comprehensive accounting and reporting infrastructure in the national power sector to support mandatory greenhouse gas reporting and emission trading schemes. The government of Jiangsu province has requested the institute's support to help them develop greenhouse gas reporting guidelines for coal-fired power plants, affecting over 90 percent of power generation in Jiangsu and 10 percent of power generation in China.
