Alro is one of the largest vertically integrated aluminum producers in Europe, and one of Romania’s most important companies. Part of an integrated group that covers the entire process of aluminum production, from bauxite to high value-added products, the company is widely trusted amongst top manufacturing companies around the world. The company, listed on the Bucharest Stock Exchange, is also dedicated to improving energy efficiency and reducing its carbon footprint. Here, Marian Nastase, Alro’s chairman, explains the company’s strategic vision, the benefits of being in the European Union, and why targeting greener processes has become a top priority.
Alro started as a state-owned company in 1961. Could you share a bit more about its history and how it fits into the Vimetco Group structure?
Yes, the company was in a privatization program led by the World Bank and went private in 2002. Within the framework of Vimetco, it was the company’s first acquisition. The new owner had a strong vision for the company, and the first pillar of this vision was vertical integration. For that, the group went through a succession of acquisitions. Alro acquired Alum, an alumina refinery, which is also located in Romania and produces the main raw material to produce aluminum. And then, in order to decrease the volatility of supply, in 2008 we acquired a bauxite mine in Sierra Leone. Aluminum has two main ingredients: alumina and energy. In the industry, the rule of thumb is that in terms of expenses, alumina is about 35% and energy also about 35%. In our case in Europe, the labor force accounts for around 10% of the costs. In China, for example, the cost of labor is less and translates to about 4-5% of the total cost. Having said that, as long as you have predictability within the two key cost items, you’ll have predictability in the business plan as well. In downstream, the strategic direction is the move into producing high value-added products. For that, we acquired another company in Romania called Alprom, which eventually got merged into Alro in 2006. This is important because the more value-added products you have, the more valuable your product is and, basically, you can sell it everywhere in the world. Since 2010, we have been exporting all our high value-added products to Western Europe. About 80 percent of our production is exported. In fact, Germany is Alro’s largest business partner in Europe, as it has the most sophisticated manufacturing base. Obviously, we also look to export outside Europe. The US is the largest market also because of its sophisticated manufacturing base. South East Asia, and to a smaller degree, Mexico and South America are also important markets.
How advantageous is your location within the European Union?
It was, it is, and it will continue to be a big advantage. First, because of proximity. We are located in the most developed part of the world and the European Union is still the largest market in the world. Being in the EU continues to help because several cycles of European policies put significant pressure on the aluminum industry. Back in 2004, there were 33 EU smelters, including Norway, but now there are only 11. That creates an even more important position for Alro in Europe. Being in the EU will continue to be an advantage because if the world moves in a less globalist direction, with more tariffs and protectionist measures implemented, we will be inside the castle. Obviously, being on the inside is very important.
Do you think that’s the direction the world is taking?
Yes, I think so. I believe that at least for a while there could be a period marked by increased protectionism. At the moment, we are in a period of rebalancing relationships between countries. There are countries that have a long history of being very powerful, rich and with access to a variety of resources. Some of them still maintain that status. Some of them want it back. So the bus of empires is pretty crowded at this point in time. Not only is it crowded, but everybody wants to drive. So until people calm down, it will be a turbulent period.
For a company such as Alro, it makes a lot of sense to stay conservative because you need to plan for eventualities…
Basically, as producers, we are conservative because we have responsibilities to more than 4,000 people and their families, and because we need to stay very close to our clients. After our migration into higher value-added products, we now have clients who depend on us a lot. For our clients in the automotive industry, aviation and the cable industry (all the major cable manufacturers are our clients) predictability is key. So we have to be conservative. It’s the nature of our business and the business model.
How else has the shift to high value-added products affected the company?
The actual plan began in 2006 and it took us a few years to work together with Airbus to get certified and become a direct supplier. Airbus has a very limited number of suppliers qualified to deliver Aluminium Flat Rolled Products, and we are one of them. It’s also important to note that their certification is per plant, not per company. That means the plant in Romania is certified and was audited every year, but after graduating with a maximum grade, it’s now audited only every two years. Since 2017, Airbus has allowed us to make public the fact that we are one of its suppliers.
The aluminum industry is heavily energy intensive. What are your thoughts on the industry’s transition to becoming cleaner and greener?
To be green in a sustainable manner can be difficult to achieve, not because companies cannot do it, but because the policies should be more harmonized. For example, the European Commission has a program called DG Grow. Its primary task is coordinating and designing the policies for industry in Europe. And then you have DG Clima, which is designing policies for the environment. As long as each segment considers the other segment as dangerous as the Taliban, we will not succeed. Of course, policies will push forward, but the cooperation will be like in a boxing ring; whoever has stronger muscles in a given period will impose their policies to the detriment of the others. In my opinion, once we evolve – because it’s a matter of evolution – to a point in which it isn’t industry versus environment, but instead an approach that looks into the needs of all sides and is able to produce coherent and sustainable policies, everyone will be better off. I also think the quicker we evolve, the better. The less time spent destroying the ‘others’ will mean more time working together productively.
Alro is currently undertaking the “Green factory” plan, which sets out a roadmap to invest more than $190 million through 2021 to improve its operations, with over half of this targeted at enhancing energy efficiency. In comparison to your peers, where would you say Alro is in terms of its environmental policy?
I think we are quite ahead of most of our peers. There are various statistics at the European level, and when we saw those studies, we were quite surprised to see just how much. I will not give names but I was quite shocked to see how well Alro is positioned compared with its peers in Europe, both in terms of energy efficiency and labor safety. There are pretty surprising numbers about labor safety from our peers in Europe. One reasoning behind a producer going green is the fact that 35% of costs go to energy, so it’s good for the bottom line. But that’s just a small part of it. There are parts of this world that are extremely polluted. I have a kid, and I was traveling in another part of the world and I saw children with masks on their faces with carbon filters. Not just a simple mask that you use when you have a cold. Of course, they had Minnie and Mickey Mouse on them, but seeing that has changed the way I look at the topic. On the other side, that of action, I believe people need to actually look at the matter in a more constructive and coherent way. We are doing a lot of things to reduce pollution and the carbon footprint, but at the same time, I am so sad. I was in Sibiu last weekend and it was sad to see how devastated some forests are in Romania. So, what’s the point of implementing green policies in, say, construction, while you are decimating forests for that construction? Thousands of hectares per year. This is why you must have integrated impact studies. I think most policies are still just propaganda. Don’t get me wrong; there are countries that are really doing a lot for the issue, but there is still a lot of hypocrisy. I mean, we claim that we want to reduce climate change but, at the same time, we are decimating mountains of forests. We claim that we would like to have green energy by 2050 but, at the same time, recycling in Romania remains at a very poor level. A more integrated approach will help target the actual problems which exist in every country. For example in Norway, I think the preoccupation with recycling is minor because they’ve been recycling a lot for decades. And obviously, when there are discussions between member states, Norway doesn’t prioritize recycling. However, in Romania, the business of recycling has barely scratched the surface and the policies just aren’t there.
Is aluminum recycling part of Alro’s business model?
Yes, but most of the aluminum we recycle is imported from Germany. In Romania, it isn’t sorted but in Germany it is. We do have a plan to invest in the upstream recycling business in Romania. We aren’t going into the collection area, but we will recycle what is collected. It’s actually a way to develop the business model by decreasing the dependency on energy, and decreasing costs. Recycled aluminum is much more cost efficient. Of course, for some areas of our business, we must use clean, not recycled metal, but where recycled aluminum can be used, it is an excellent option.
As one of Romania’s top energy-consuming companies, what are your thoughts on Romania’s energy sector?
There is only one message: there needs to be a solid understanding by all parties in the sector. There are the different producers, who have very different needs depending on whether they work in hydro, wind, solar or nuclear. The infrastructure also has to be considered; the grid, for instance, has safety requirements. Then, there are consumers. There are baseload consumers and domestic consumers (mostly peak users), so you have to have an integrated approach. If everybody only moves their own agenda, it doesn’t work.
What message would you send to Germans about Romania?
I think the truth of Romania defies the current perception. In Romania, you will find people who are well educated, hardworking, and you will find competencies that may even astonish you. If you look at the automotive industry in Romania, there are a lot of plants, companies and businesses that moved to Romania from Germany. And I think the management of those companies is quite happy with what they find here. But what is essential about Romania and its human condition is that we want to live better. That means we will work harder to achieve a better standard of living. That is an important factor for German companies to keep in mind. Products from Romania also have the standard, the quality, and service attached to them that satisfies the manufacturing base in Germany. We have plants in Germany that are very happy with our products, quality and service. I think the warning is that in a more protectionist world, companies should create as much value and business as possible within Europe. Once, I was talking to someone who said: “Aluminum is heavy industry. We don’t need that here; there are other parts of the world where it can go.” I replied: “Aluminum is used not only for commercial planes, but also for fighter jets. In a situation where Europe needed to build more fighter jets but was an importer of aluminum, would you get that aluminum to build those jets from the enemy?” There have been decades of peace but if you look at the history of the world, peace is rare. Of course, I hope it remains but we can’t take it for granted.