Our aluminum smelters are the most profitable in the world, according to a study by McKinsey

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Our aluminum smelters are the most profitable in the world, according to a study by McKinsey

Minister Pierre Fitzgibbon warned, in February, against the risk of aluminum smelters closing if they do not obtain additional energy blocks.

Quebec is home to eight of the nine aluminum smelters in Canada, such as Alouette, in Sept-Îles.

A confidential study by McKinsey and Hatch, funded by the Quebec government on behalf of the industry, reveals that Quebec aluminum smelters are the greenest and most profitable on the planet. This document obtained by Radio-Canada puts into perspective the specter of a closure of the aluminum smelters, brandished by the Minister of the Economy, if ever they do not obtain more electricity at low cost for their projects.

Quebec aluminum smelters are fundamentally in an enviable position, concludes the 130-page study, carried out in May 2019, on behalf of AluQuébec, the aluminum industrial cluster in Quebec.

“Quebec's competitive advantage is mainly due to energy costs, which are approximately 37% lower than the average for the rest of the world.

—Study “The future of the aluminum industry in Quebec”, by McKinsey and Hatch

The study calculates that aluminum smelters in Quebec have a cost of production total 13% lower than in the United States, 11% lower than in Russia and 7% lower than in China.

Even a 7% advantage is huge, reacts the professor of the University of Ottawa, specialist in energy economics, Jean-Thomas Bernard. He recalls that Quebec aluminum smelters also benefit from privileged access to the American market.

Excerpt from the study in which we see the different production costs of aluminum depending on the country.

The study places aluminum smelters in the United Arab Emirates with a slightly lower cost of production than Quebec, but a footnote indicates that the calculation of the energy cost of Quebec plants does not take into account counts self-generated electricity.

However, taking into account the electricity generated, at low cost, by aluminum smelters in Quebec, which have their own dams, they become more profitable than those in the United Arab Emirates .

According to a report by the Aluminum Association of Canada, aluminum smelters use a total of 4,600 megawatts (MW), half of which (2,343 MW) they produce themselves (2,093 MW at Rio Tinto Alcan and 250 MW at Alcoa).

The Chute-à-la- Savane, one of the dams owned by Rio Tinto in Saguenay-Lac-Saint-Jean.

This self-produced electricity would cost Rio Tinto about 1 cent per kilowatt hour (kwh), much less than the rate negotiated with Hydro-Québec for the rest of the electricity the company consumes (less than 4 cents per kWh, on average , in recent years).

The cost of energy for Quebec aluminum smelters would therefore not be US$364 per tonne as indicated in the table, but rather around US$250 $US.

Energy represents the main input for the production of primary aluminum in the world, said the CEO of the Aluminum Association of Canada, Jean Simard, in a statement sent to Radio-Canada, via the TACT consulting service agency.

“Quebec's hydroelectric power remains the only strategic lever to ensure the competitiveness of large industrial sectors of the future such as aluminium. »

— Jean Simard, CEO of the Aluminum Association of Canada

The McKinsey and Hatch study also shows that the production of aluminum from hydroelectricity, renewable, adds a competitive advantage for Quebec plants, compared to aluminum smelters elsewhere that use coal or gas.

But even if the aluminum produced here is the greenest in the world, McKinsey and Hatch maintain that Quebec plants must strive for maximum decarbonization, in the face of the green shift undertaken by other competing aluminum smelters.< /p>

“New smelters in the Middle East and China are putting pressure on Quebec. […] In the absence of strategic changes, the Quebec industry will gradually become less competitive as new foundries are built in other regions. »

— Study “The future of the aluminum industry in Quebec”, by McKinsey and Hatch

Quebec aluminum smelters already consume 12% of all the electricity produced in Quebec. Despite this, to further decarbonize and take advantage of the greenest product on the market, they need even more power. This is why they are among the industries that have asked the Legault government for the granting of additional energy blocks.

Minister Pierre Fitzgibbon, during the unveiling of the Aluminum Development Strategy, in 2021.

For weeks, Prime Minister François Legault and his Minister of Economy, Innovation and Energy, Pierre Fitzgibbon, have not missed an opportunity to promote “green aluminum” thanks to Elysis technology.

Elysis is a joint venture formed by Rio Tinto and Alcoa, funded 67% by Quebec and Ottawa, which is developing a new technology to green more aluminum manufacturing.

Minister Fitzgibbon has already shown support for providing the additional megawatts requested by aluminum smelters. So much so that he has even brandished the threat of their closure if they are not helped to obtain them.

“The important thing is to decarbonize the aluminum smelters, because if we don't do it, they will close

— Pierre Fitzgibbon, Minister of Economy, Innovation and ;Quebec Energy

Rio Tinto benefits from an advantageous rate with Hydro-Quebec which evolves according to the value of the aluminium. Thus, aluminum smelters were able to pay less than 4 cents per kWh until 2022, less than the L rate of large industrial consumers, at more than 5 cents.

But after a long period during which the volume of energy available was high and supply costs for Quebecers were low (i.e. 3¢/kWh for heritage pool electricity), Hydro-Québec is anticipating an era of strong demand.


“We will have to increase electricity production, and at a much higher cost (approximately 11¢/kWh). »

— Brief from Hydro-Québec presented to the parliamentary committee on January 31, 2023

The Crown corporation warns that any connection involving the purchase of additional electricity will have tariff impacts that will have to be distributed among the different customers due to the cost of new supplies, which are higher than the tariffs.

In this context, Professor Jean-Thomas Bernard thinks that the government should be very hesitant and very cautious before granting discount megawatts to aluminum smelters, which would constitute, according to him, a form of subsidy.

With the 2021-2024 Québec Aluminum Development Strategy, companies in the sector can benefit from financial interventions valued at more than $250 million, from credits from the Economic Development Fund, and $150 million from equity from Investissement Québec.

Aluminum is Quebec's second largest export sector, with $7.4 billion in 2020. Quebec produces 60% of the aluminum consumed in North America. The industry employs 30,000 Quebecers in more than 1,500 companies.

In 2018, the Government of Quebec granted $3 million to AluQuébec to allow it to study and imagine a factory model of the future with the aim of developing technologies upstream to make the aluminum industry even more competitive.

This money was used in particular to pay the #x27;study by McKinsey and Hatch. Its content was then found in the summary report The aluminum smelter of the future, which itself has been used by industry to influence the government's strategy.

Quebec is competitive, but its position is weakening, the report reads. summary, which Radio-Canada got its hands on, which recommended strengthening the competitive positioning of the industry.

In the introduction to the Quebec Aluminum Development Strategy, Pierre Fitzgibbon wrote that he hoped that increasingly green aluminum would be produced and that businesses would be modernized by adopting cutting-edge technologies [which] will ensure their growth and competitiveness.

The Minister had even drafted a memorandum to the Council of Ministers, with a view to the Strategy, in which there were recommendations similar to those of McKinsey and Hatch.

As in the study commissioned by the industry, the Legault government strategy clearly states that it aims to stimulate automation. And we already found this principle in the memoir of Pierre Fitzgibbon.

“In order to maintain its competitiveness and ensure its sustainability, the aluminum industry in Quebec must continue its automation efforts, adopt advanced digital and production technologies, and gradually move to a 4.0 mode of production. »

— Excerpt from the brief produced by Pierre Fitzgibbon in 2021 for the Council of Ministers

McKinsey and Hatch recommended reducing production costs by 3% to maintain competitiveness by 2025 It is even suggested to reduce up to 16% through maximum automation of operations and robotization.

These changes would imply significant job losses which add to the job losses generated by the arrival of the Elysis technology.

Yes, we have to help companies stand out, but it still takes consideration. You can't give more money and get less in return, worries Jean-Philippe Lévesque, president of the North Electric Power Workers' Union (STEEN), whose members produce energy from the dams owned by Rio Tinto.

Jean-Philippe Lévesque.

“Will the aluminum smelters allow the [Saguenay-Lac-Saint-Jean] region to benefit from the savings they will have on the purchase of electricity? Will they make more people work? What is the company's vision? Cut labor or increase it? »

— Jean-Philippe Lévesque, President of the North Electric Power Workers Union (STEEN)

On January 27, Prime Minister Legault stated that in order to distribute the additional blocks of energy to industrialists, he was going to look at the economic spinoffs of each of the projects. And he added: What are the fallouts from aluminum smelters? These are jobs that are in the regions, important jobs for the regions.

Economist Jean-Thomas Bernard points out that the Quebec aluminum industry has invested relatively little in the past 20 years, so it's not too surprising that its productivity has deteriorated. .

So, today, going to reward them for this delay, it would be ill-advised, he believes.

“I think the government should be very careful about supporting an industry that has been dragging its feet a bit in increasing its productivity. »

— Jean-Thomas Bernard, Professor of Economics at the University of Ottawa

In the last budget, Minister of Finance Éric Girard did not allow the aluminum industry to qualify for the tax credit for large projects, when Pierre Fitzgibbon would have liked it to be entitled to it, according to La Presse.

The office of the Minister of the Economy did not respond to our request, as did the firm Hatch. As for McKinsey, she wrote to us that she does not comment on the work of her clients.

On April 4, 2022, the former global director of McKinsey, the Canadian Dominique Barton, became chairman of the board of directors of Rio Tinto.

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