RioTinto Alcan, Aluminum Industry Analysis & Case Study presentation
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Rio Tinto Alcan & The Aluminum Mining Industry Alexis Haynes I Kelly McAndrew I Nicolas Murcia I Fernando Rivera I Alexis Skrobek
description
How can RioTinto Alcan maintain its leadership in the aluminum industry?
Transcript of RioTinto Alcan, Aluminum Industry Analysis & Case Study presentation
Rio Tinto Alcan & The Aluminum Mining Industry
Alexis Haynes I Kelly McAndrew I Nicolas Murcia I Fernando Rivera I Alexis Skrobek
Agenda
1. Introduction
2. External Environment
3. Internal Environment
4. Strategy Formulation
5. Implementation Plan
Introduction
Introduction I External Environment I Internal Environment I Strategy I Implementation
Why Aluminum?
‣Merger between Alcan and Rio Tinto
‣Key input material in several industries
Methodology‣Interview with Ulf Quellmman, VP Investor Relations for Rio Tinto Alcan
‣Secondary sources (databases)
External Environment
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North American Aluminum Industry Overview
Totaled a value of $5.9 billionTotal market volume was 2.284 million metric tones
Increase to 2.7 million metric tonesDecrease market value
2006
2006 - 2011
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North American Aluminum Industry Overview (cont)
Highly concentrated
‣Domestic industry 4C=75.1%
Smallest regional contributor to global production (8.5%)
‣Behind Asia-Pacific, Europe, Rest of World
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Aluminum Price
2006-07: increase of 9.6% = $1.25 a pound
No effect on margins:
1. Overall increase in demand
2. Increasing costs, specifically with regards to raw materials
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Macro-environment
‣GDP’s largest driver : private consumption (70%)
‣Sub-prime mortgage credit crisis: decrease in consumption
-Possible recession
‣Slowing economy: increased unemployment
Result: Industry’s end product markets negatively affected housing and motor vehicles
US economy
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Result: Negative effects on end product markets
‣Positive performance over the last decade
‣Macro-economic level policy changes are expected to decrease private cosumption
‣Slow in housing sales
Canadian economy
Macro-environment
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Result: Positive effects on end products markets
‣Forecasted increase in housing sales
‣Baby boomers moving into retirement
Canadian economy
Macro-environment
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Socio-Cultural & Political Trends
“Green Trend” / Environmental sustainability
‣Laws and preferences for lighter more fuel efficient cars
‣Possible changes in end products, production processes, and increased cost structures
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Factors Shaping Long-Term Performance
1. Consolidation
2. Foreign competition
3. Manufacturing technology
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Consolidation
Examples:‣United Company Rusal: largest aluminum company‣Rio Tinto Alcan: largest aluminum producer
Causes:‣Volatile raw material prices‣Efficient cost management in an industry‣Decreasing competition for “scarce transportation assets”
Decreased exposure to market volatility as firms have more control over aggregate output and therefore can lessen overcapacity’s downward pressure on price
Factors Shaping Long-Term Performance
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Foreign competition: emergence of China
China increased aluminum production
Market surplus Downward pressure industry’s price
China’s year end production levels Domestic market surplus/deficit
1
2
Factors Shaping Long-Term Performance
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Key Success Factors
1. Size of operations
2. Managerial practices
3. Research and Development
4. Access to production inputs
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Competitors in North America
Alcoa Inc.
‣Production of primary aluminum
‣Revenues (2007): $447.7 million
‣Subsidiaries in US and Iceland
Century Aluminum Company
‣Production of primary aluminum, fabricated aluminum and aluminia
‣Revenues (2007): $30,748 million
‣US accounts for >50% of revenues
‣Presence in China and Russia
Internal Environment
Organizational Vision & Governance
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“Good governance in areas such as environmental performance, community relations, human rights, and
employee well-being are just as important as the technical and economic aspects of mining and processing.”
Source: Rio Tinto Corporate Website (2008)
Infrastructure & Stakeholder Management
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Infrastructure
Stakeholder
Monthly reviews of sustainability performance relative to their 1 and 5 year targets
“Quick and Efficient”
Competitive Advantage
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1. Ability to secure new bauxite mine
2. Access to financial support and resources
3. Proprietary knowledge of smelters technology
4. Unique energy supply
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1. Ability to secure new bauxite mines
Competitive Advantage (cont.)
Source: Information for Rio Tinto Alcan extracted from Rio Tinto alca Proforma 207 results release 12 March 2008; information for other major producers extracted from Brook Hunt 2006 (most recent data available)
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2. Access to critical resources
Competitive Advantage (cont.)
Source: CRU Jan 2008, Brook Hunt Nov 2007, Alcoa 2007, Rio Tinto Alcan 2008, Rio Tinto Alcan 2007, UC RUSAL Jan 2008
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3. AP technology leadership
Competitive Advantage (cont.)
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4. Renewable energy supply
Competitive Advantage (cont.)
Source: Financial community site visit (12-14 March 2008), Rio Tinto Alcan
Corporate Strategy
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Short-term focus
Long-term focus
Deliver on integration and synergies
Build a durable / sustainable business
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Cost Leadership
Commodity
Development of new processing technologies
Below average industry cost of production
Business Level Strategy
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Business Level Strategy
Source: CRU - Primary aluminum Smelting Costs 2007 Edition - Smelter Cost Profiles and the Benchmarking Model Version 2.0; Rio Tinto Alcan
Industry Value Chain
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Bauxite Mining
AluminaConversion
AluminumConversion
OpenMarket
Energy supply
Technology
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Bauxite Mining
AluminaConversion
AluminumConversion
OpenMarket
Energy supply
Technology
Original Industry Model
Industry Value Chain (cont.)
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Bauxite Mining
AluminaConversion
AluminumConversion
OpenMarket
Energy supply
Technology
Current Industry Model
Industry Value Chain (cont.)
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Bauxite Mining
AluminaConversion
AluminumConversion
OpenMarket
Energy supply - 48% generated
Technology
Rio Tinto Alcan unique quasi-fully integrated model
Industry Value Chain (cont.)
Summary of Competitive Position
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Resource leadership
Technology leadership
Reputation leadership
Operational excellence
High
High
High
High
Leading position High
Strategy Formulation
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1. Natural resource seeking activities
2. Market seeking activities
3. Efficiency seeking activities
4. Strategic assets or capability seeking activities
Determinants for global production investment
Selection Criteria
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Challenge Opportunity
Internal disruption
Rise of China
Competitors can catch up
Demand for sustainability
Manage acquisition
Source R&D in S.E. Asia
Process innovation of AP technology
Green innovation, develop standards
Alternatives
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Strategic Recommendations
Manage acquisition
Go more globalProcess
innovationGreen
innovation
Natural Resources
0 0 0 +
Market 0 0 + +
Efficiency + - + +
Strategic asset, capability
+ + + +
Decision Matrix
Implementation Plan
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Three phases for future growth
1. Manage acquisition‣Achieve synergies in HR, technological, physical resources‣Implement productivity measures to track change
2. Green innovation‣Focus on improvements at each level of value chain‣Ensure a shelter against potential non-green taxes
3. Process innovation‣Seek incremental innovation for AP technology‣Maintain market position by staying ahead of competitors
Competitive Advantage
Industry Leader
Competitive Advantage
Managerial Priorities
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Phase 1: Manage acquisition
Phase 2: Green innovation
Phase 3: Process innovation
Years0.5 1 [...]0
Phase 1
Phase 2
Phase 3
Timeline
15
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Strategic recommendations focused on internal activities, in the case external challenges arise
Exogenous variables
1. Delay progressive strategies‣Differentiation through innovation, green standards
2. Focus on core competencies‣Access to raw materials‣Cost cutting alternatives for extraction processes
Contingency Plan
Conclusion
Winning the zero-sum game
The preservation of Rio Tinto Alcan’s leadership position
in the increasingly global primary aluminum industry will
be dependent on strengthening its current competitive
advantages to stay ahead of its competitors
Q&A I Thank You
