Aluminium Limited and International Trade

DR. GOLDRING: During the last twenty-five years, it is doubtful if any industrial development in our country has captured the Canadian imagination as strongly as the Kitimat project in British Columbia. People read with interest something of the engineering problems which faced the planners of that project. They saw pictures of the work as it progressed and they had the opportunity to peruse many articles in both newspapers and magazines. One of the results was that Canadians became more keenly aware of the potentialities of aluminum and of some of its probable future uses. It might be added, too, that some Canadians became aware of the fact that if they had invested in the common shares of Aluminium Limited in either 1952 or 1953, they would have seen their investment more than double in value during 1955.

It is a privilege to have with us today Mr. Nathanael V. Davis, President of Aluminium Limited, which has more than fifty subsidiary companies in twenty-four countries, the largest subsidiary being the Aluminium Company of Canada Limited. Mr. Davis was born in Pittsburg, Pennsylvania, and educated at Harvard University, London College of Economics, and the University of Glenoble, France. For the past sixteen years he has been actively associated with Aluminium Limited, or its subsidiaries, in various parts of the world. Since concluding his service in World War II, he has served in the company's office in London, England, and became a Director and the President of Aluminium Limited in 1947.

On your behalf, I extend to him a warm welcome to this meeting of the Empire Club of Canada. Those present will be joined by many who will listen over the radio as Mr. Davis addresses us on the subject "Aluminium Limited and International Trade".

MR. DAVIS: I feel deeply honoured to be your guest here today and to have been invited to speak before you. This is, I think, the first time in a great many years that an incumbent of my post has had the pleasure of speaking in Toronto. In fact, it may go back nearly twenty-five years when the annual meetings of our shareholders were held in this city.

Speaking about shareholders and considering the rivalry between Toronto and Montreal, I should perhaps only whisper that there are almost as many owners of our business here as there are in Montreal. The figures are 2,780 shareholders in Toronto and 2,900 in Montreal.

Toronto has other links with the aluminum industry in Canada. It is significant, for example, that the first fabricating plant in Canada for the production of aluminum sheet and mill products was established here by one of our present subsidiaries in 1912. Today, it is estimated that the Toronto area contains over 3,000 fabricators and users of aluminum, employing of course many times that many people.

Today, I would like to develop with you the subject of Aluminium Limited's growth and its position in international trade. It is the story of a group of companies, originally small subsidiaries of an American company, coming of age twenty-seven years ago as an independent and public Canadian company and growing over the years into a major producer of aluminum. It is also the story of a Canadian company owing much of its development and expansion to the growing markets outside of Canada. It is, therefore, a paradoxical story of a company becoming on the one hand, an independent Canadian firm and, on the other hand, basing its growth in large part upon non-Canadian markets. To heighten the paradox it should perhaps also be added that the basic raw materials of the industry are also non-Canadian, to which Canada contributes mainly hydroelectric power and manpower.

To develop this theme it is necessary to sketch briefly a few historical highlights. The production of primary aluminum in Canada began more than fifty years ago with the creation of a small aluminum smelter at Shawinigan Falls in Quebec. It was small by today's standards but, in those days, it represented a pioneer industry of some size. That start was the beginning of what is now known as the Aluminum Company of Canada, Limited, or "Alcan". A quarter of a century later, in 1925, the beginnings of the Saguenay River development, including the smelter development at Arvida, were undertaken.

A few years later, in 1928, Aluminium Limited was incorporated as a Canadian company to take over and develop properties and enterprises, including Alcan, outside of the United States, which had previously been owned by the Aluminum Company of America. Today, as you know, Aluminium Limited has no connection with the Aluminum Company of America and competes with it, particularly in the United States market. We put down our corporate roots in Canada because the great majority of our physical assets were located in Canada and our natural markets lay principally in the British Commonwealth. You may recall that, at that time, markets for Canadian production outside the Commonwealth were severely handicapped by high tariff barriers, or other forms of trade impediments. It was a period of protectionism and area preferences.

Aluminium Limited was launched in the deceptive calm before the storm. I am sure you suspect - and rightly - that my interests were not directed toward the aluminum business or indeed any other business in those days. I cannot, therefore, give you any firsthand account of those early and difficult years. Those who were in charge (and I am grateful there are many still with us) were faced with the running of a new but completely uncoordinated and unintegrated group of facilities, during times of tremendous economic stress. No cash dividends were paid, either common or preferred, for the first eleven years of the company's existence. It must have been a trying time for management and obviously a lean time for the owners of the company. Not until 1937 did business really begin to pick up but, in the two years prior to World War 11, the company was able to justify a 100% expansion of its Canadian smelting facilities.

The war, of course, brought great changes in the aluminum picture, in Canada and elsewhere. The pressing military demands, first of Canada and the United Kingdom, then of the United States, brought about a rapid expansion. In the case of the United Kingdom, arrangements were made for the building out of power and smelter facilities in the Saguenay area, an expansion financed in part by British loans totalling $56 million. Although Britain had been Canada's largest and traditional market for aluminum for a great number of years before the war, these war-time arrangements led to a close association which continues to exist between the company and the United Kingdom market. This association has, on the one hand, rendered the company financial assistance now standing at a total of $120 millions for the development of new facilities and has, on the other hand, given the United Kingdom, through first-call arrangements on part of our production, a reliable supply of aluminum ingot.

Expansion was also undertaken to meet some of the United States' military requirements, and during the war the United States received a total of 682,000 tons of Canadian aluminum. This is a tremendous quantity, even by today's standards. I believe, therefore, it is not an overstatement to say that Canadian production made a vital contribution to the joint war effort and to Canada's role as a major supplier to many world markets, including the United States. In terms of capacity the wartime growth was from 90,000 tons in 1939 to almost 500,000 tons in 1945 - a 400% increase.

With the end of hostilities there was considerable concern over the excess capacity for aluminum ingot brought into existence during the war. Many people were asking: "Can the world use five times a much aluminum as it did six years ago?" Quite frankly, we asked ourselves the same question. With the benefit of hindsight, our concern over finding markets for aluminum may today make it appear as if we were then little more than incorrigible pessimists. But if you will consider that Canada's consumption in 1946 was 34,000 tons and that our effective smelter capacity was nearly ten times that figure, it is I think no wonder that it seemed like a pretty cold world to those responsible for selling our output.

It is now common knowledge that there soon appeared a dynamic growth in the commercial uses of aluminum. The pent-up consumer demand, the shortage of other metals and their accompanying higher prices, and the new familiarity with aluminum, arising from the war-time experience, all combined to give a sudden and welcome surge in demand. I think it also fair to say that the surge in demand was partly the result of the intense sales development programs which have been pursued by the producers of aluminum in this and other markets. I refer to the development by the producers of such products as aluminum cable, foil and roofing - now quite standard and common products but not so a few years ago. Whatever the reasons, with minor exceptions the growth in demand has been, and continues to be, unrelenting and, for all of us in the industry - Canadians, American and Europeans - the pace of expansion has been rapid.

I might digress briefly here to give you an outline sketch of the world aluminum industry and explain how we in Canada stand in relation to it. There are in the free world about twenty-five separate aluminum-producing companies operating in some sixteen countries. The major producing countries in order of importance in 1955 were-the United States, Canada, West Germany, France, Norway, Austria, Italy, Japan, Britain and the rest.

The great majority of these aluminum producers in various parts of the world outside Canada are separately owned and controlled. Probably the most significant feature of these competitors, both large and small is that their production is substantially all required for consumption in their home markets. Only Canada, Norway, and to a lesser extent, Austria, can normally be called important exporters of primary aluminum. At least 75% of all the aluminum that moves in international trade is exported from Canada and this goes to countries which either have no production or who have a domestic deficiency. In recent years all of the other producers, like ourselves in Canada, have been hard put to keep up with demand and most of them have been increasing their production capacities to the extent practicable. Many countries have not found it easy or economic to expand their production and this is where Canada's opportunities have developed.

In addition to the growth in demand there were, however, two other postwar developments which, as a result of our position, had a considerably greater influence on us than on most other producers. In many markets, including of course Canada, there has emerged a vast number of independent fabricating companies. This development has been particularly significant in the United States where it is estimated there may now be as many as 24,000 firms dealing in aluminum in one form or another. These firms have several sources of supply from among the United States producers but these same producers are also heavily engaged in the fabricating business and thus can fabricate to advantage a large part of their own primary production. In contrast, we are not as heavily committed in the field of fabrication and have compelling reasons to be a seller in all markets of aluminum in primary form. These circumstances have influenced many of the independents to turn to us as a source of metal. We, on our side, have naturally enough actively cultivated these customers. The demand on us from the United States independents has grown to a point where it is beyond our capacity to supply. We have a strong desire to maintain and improve our position in this segment of the U.S. market with which we have a certain natural propinquity. For many reasons Canada is a logical source of primary aluminum for the U.S. independents and it is, we feel, in the interests of both Canada and the independents to encourage this relationship. We are working in this direction but it will be a few years before we can make substantial increases in the tonnage available for this market in the U.S.

Related in part to the foregoing, the postwar period has brought about a welcome reduction in the U.S. tariff on primary aluminum. We have unquestionably benefited from the partial removal of these trade barriers and we believe strongly that further reduction should be made, not only in the interests of Canada but also in the interests of the United States aluminum industry as a whole. At first glance this may seem contradictory but it would appear that the huge fabricating industry in the U.S. can derive nothing but benefit from a relaxation of trade barriers on primary aluminum. This would seem so not only today but it is likely to be even more apparent in the years to come.

Another factor of great importance in the last ten years has been the relative stability of aluminum prices in comparison with most other metals. Even today, after a decade of inflation the basic price of aluminum is only about 15% higher than it was in 1939, while prices of other materials have doubled, and some have doubled twice over. Considering the strong postwar demand, there is no doubt that aluminum producers could have asked higher prices for their product, but they have tended to forego short-term gains in the interests of building long-term demand at economic prices.

These postwar developments - a tremendous growth in demand - the emergence of a large body of independent fabricators in Canada and the United States - and the reduction of trade barriers, not only quickly absorbed our postwar capacity but brought about rapid expansion for us in Canada. Our major expansion, as you know, has been the Kitimat project in British Columbia, but we have also brought in a considerable amount of new hydroelectric power in Quebec and have rounded out our smelter capacity there. There has been no let-up in expansion and, barring unforeseen changes in the outlook, there are many years of expansion ahead of us. Parenthetically, if you recall my reference to incorrigible pessimism just after the war, it may now seem as if almost everyone in the aluminum industry is an incorrigible optimist. Perhaps there is some risk that the rapid growth of the past ten years has produced in the minds of aluminum people a feeling of over-optimism in the future. However, in my considered view and that of my associates, the outlook continues to be one of substantial growth.

At least by our standards, an enormous amount of capital has been and will be required. Some may say that we are expanding "the hard way", by doing so on a completely integrated basis, and developing at heavy initial capital expense our own hydroelectric power. As far as the original financial impact is concerned it is perhaps "the hard way" but we believe it is the right way and, on economic grounds, the best way - not only for us but for our customers. All this has meant that for the past five years our expenditure on new plant, the bulk of it in Canada, has averaged two million dollars per week. If, as I hope, it is possible to continue at full speed with the present expansion plans for Kitimat and Quebec, our total capital outlays for the period 1950 through 1959 will come to more than $790 millions, or an average of better than $1.5 million per week over the ten-year period.

We take great pride in the part Canada has played in helping to finance these undertakings. I estimate that, today, the Canadian investment in our business is over $425 millions in debt securities and shares. Today, Canadians own 25% of Aluminium Limited's equity and the proportion seems to be growing steadily. Thus, over the years, not only has our growth been heavily concentrated in Canada but Canadian individuals and institutions have participated actively in all segments of the company's affairs. It is a far cry from the day of our formation in 1928 when the Canadian public had little or no equity investment in the company.

As I have tried to describe to you, a large part of this growth has stemmed from the opening of new and large markets beyond the Canadian border. Within Canada the growth of the market has also been particularly gratifying. It is not so long ago that the company was obliged to send Canadian college students from door to door selling cooking utensils in order to obtain the first recognition and acceptance for this new metal. But over the years through patient, hard work, the company has helped to create a demand and has developed many of the techniques and uses that have enabled hundreds of fabricators and manufacturers to enter the aluminum field. A splendid job has been done by the Canadian fabricators and today Canadian consumption of aluminum is about ten times as great as it was in 1938. Over the next fifteen to twenty-five years as population grows, living standards rise, and more and more manufacturers take up the use of aluminum, it is likely that Canada will be able to fabricate and use at least two or three times as much primary aluminum as it does today. No doubt there may also be a growing export trade in fabricated goods. But in the meantime, and for the foreseeable future, the export of primary aluminum will continue to be of paramount importance. I say this because even though the home market is one of the fastest growing markets, this country has never consumed much more than 15% of our primary output. No one can understand what makes this company tick without recognizing that we must export to survive.

During the past five years our production has substantially averaged 25% of the Free World total and in the same period, as I have said, we have provided nearly 75% of the tonnage of primary ingot moving through international trade channels. The value of aluminum exports from Canada in 1954 - the last year for which complete official statistics are available - was nearly $185 millions. Thus, in dollar value, our metal took fifth place behind newsprint, wheat, lumber, and wood pulp in that order; it was the leading metal export being just ahead of nickel.

From the foregoing it is, I believe, clear that we must continually serve and cultivate our export markets at the same time that we promote the domestic Canadian market. I am assuming here, but I trust you will agree it is a safe assumption, that a large and economic production of aluminum is a good thing, not only for Canadian consumers but for the economy of Canada as a whole. I hope you will also permit me to claim that aluminum is good for Canada. We are providing direct employment for some 19,000 to 20,000 Canadians and our annual payroll in Canada runs over $75 millions. If our growth is to continue we must place great reliance on our access to outside markets and we must play an even more significant role in international trade and conduct ourselves accordingly.

By putting emphasis on our reliance on export markets I do not wish to play down the importance of the home market. We are, as you know, faced with the results of an unprecedented drought in the Saguenay watershed which has caused us to cut production in our three largest Quebec smelters by about 40 percent - a cut in production which is likely to continue until the Spring break-up. At this very moment we are consequently faced with the difficult problem of giving proper recognition to the home market requirements, while at the same time dealing fairly with our export commitments. It is not a happy position for the company nor indeed for any of its customers. I mention this subject not to solicit your sympathy with our problems but to suggest that it is a perplexing problem to many Canadian industries which, in varying degrees, play - and aspire in the future to play - an important role in Canada’s international trade. I can, of course, only judge from the position we are in but it is apparent that we cannot maintain and build up the flourishing international trade that Canada, as the world's third greatest trading nation, so urgently requires if our export customers are to be asked to take the total impact of all adversities. It is incumbent upon us and others who may be concerned, to evolve if possible ways and means of providing, over a period, some cushion or surge tank for the vital Canadian export industries to fall back on in unforeseen times of shortage.

Mr. Chairman, I appreciate the opportunity given me to speak about Aluminium Limited and its place in international trade. It is a fascinating subject for me but I realize that our affairs and our problems do not loom large in comparison with those of many of you here. I hope, however, that you will understand and find some interest in the challenge we feel to strengthen and build up Canada's production of aluminum to serve this and other Free World markets.