Rio Tinto (NYSE:RIO) recently announced that it will cut production at its Alma smelter in Saguenay-Lac-Saint-Jean, Quebec, by two-thirds due to failed negotiations with the labor union. The Alma smelter has a capacity of processing 438,000 tons of aluminum, accounting for 11 percent of Rio Tinto’s total aluminum output. While the production cut of 292,000 tons may seem substantial for Rio Tinto, it may be a blessing in disguise considering that demand for aluminum has reduced over the past few months due to the debt crisis. Moreover, the company has been looking to reduce its number of aluminum smelters to improve the overall profitability of its aluminum business.((Labor dispute: Rio Tinto to operate one third of Alma smelter’s capacity, CommodityOnline)) Rio Tinto is a global diversified miner with a product portfolio spanning basic metals like iron ore, copper and aluminum to energy products like coal and uranium. It competes with other mining giants like Vale (NYSE:VALE) and Freeport McMoran (NYSE:FCX), Barrick Gold (NYSE:ABX).
Rio Tinto and the workers’ union at the Alma smelter have been in talks since October 4, 2011, over the pricing of new labor contracts scheduled for start in 2012. Reportedly, Rio Tinto had offered a final proposal for the renewed contracts, but was rejected by the union.
The company therefore decided to lock out 755 workers out of total 955 after their contracts expired on December 31, 2011. Rio Tinto announced on January 1 that it would reduce the output from the smelter by two-thirds due to failed negotiations. After the announcement, Rio Tinto has closed 288 out of its 432 reduction cells that produce aluminum from alumina in the Alma smelter.
We see this as an opportunity for the company to ride over the current slowdown in the global commodity market. Rio Tinto aims at sustaining all its orders and customers by continuing with one-third of the production capacity at the plant. We may soon see an increased production from the Alma smelter as global demand for Aluminum picks up.