The Rio Tinto Alcan plant in the Arvida district of Saguenay, Que.Francis Vachon/The Globe and Mail
Rio Tinto Alcan is in talks with workers about reopening a nine-year collective agreement at its aging Arvida smelter in Quebec, as the company battles stubbornly low aluminum prices hit by a global commodities slowdown.
Montreal-based Rio Tinto Alcan, the aluminum division of parent Rio Tinto PLC, said it met on Thursday with representatives of the 1,500-strong Canadian Auto Workers union at Arvida and related facilities, for preliminary talks about how to cut costs at the smelter.
The meeting, expected to be the first of several over coming weeks, came just days after London-based Rio Tinto, the world's third-biggest diversified miner, said it would delay new project approvals in the near term because the business outlook has become less certain than it was even a few months ago.
"There are a number of headwinds that we are dealing with, but certainly with the metal where it is, today it is just under $2,000 on the [London Metal Exchange], it's a pretty challenging environment," said company spokesman Bryan Tucker.
Prices for aluminum, the world's most produced metal, are close to two-year lows, forcing companies to cut forecasts and review the viability of projects, large and small.
Alcoa Inc., the largest U.S. aluminum producer, said Tuesday it has cut its forecast for global consumption to reflect concerns about lower demand from China, the world's most voracious consumer of commodities for the past decade.
Aluminum prices closed at $2,016 (U.S.) a tonne on the London Metal Exchange (LME) on Friday, compared with $2,353 in March and $2,797 a year before that.
Rio Tinto Alcan is planning to shut the Avida smelter in 2015 because it will no longer meet Quebec's environmental standards. That is the same year its agreement with the union expires.
"We're still exploring what the possibilities are. That is why we are saying that one of the serious possibilities that we are looking at might be the reopening of the [collective] agreement, but we have to reduce our costs and we have to find ways to do that," Claudine Gagnon, a Rio Tinto Alcan spokeswoman in Montreal, said Friday.
"Between now and then there is still work to be done to ensure it is cost-competitive," said her colleague, Mr. Tucker.
The company is also planning to close the Shawinigan smelter, also in Quebec, in 2015.
Rio Tinto bought the Canadian aluminum company Alcan Inc. for $38-billion in 2007. In 2009, it closed the Beauharnois smelter in Quebec.
Rio Tinto's aluminum unit has been in a cost-cutting drive for more than a year. Last October, it pledged to divest 13 of its assets, including six in Australia and New Zealand. It was also looking at divesting assets in Germany, France, the United States and the United Kingdom. This week, Rio Tinto said it is going ahead with plans to sell a century-old aluminum plant in southeastern France; earlier this year, it sold three French plants that produce alumina.
Even as it sheds its low-performing assets, however, the company is also investing in building others.
A new, $3.3-billion smelter in Kitimat, B.C., will have some of the lowest operating costs in the world, and help increase margins for the struggling aluminum division as prices remain sluggish.
The company is also completing a $1.2-billion smelter build in Saguenay, Que., that will have the most advanced and efficient smelting technology in the world.