Rio Tinto makes a turnaround as aluminium division thrives

Rio Tinto's once-pilloried aluminium division could soon rank as the company's second-biggest earner behind iron ore, in what chief executive Sam Walsh has described as "a remarkable turnaround".

The revival of a business that was a loss-making basket case barely two years ago was showcased in London on Friday morning, with the division's new boss, Alf Barrios, predicting strong demand and earnings growth for bauxite and aluminium in coming years.

The division has suffered almost $US30 billion($35.7 billion) of asset writedowns during the past six years but looks set to start delivering for Rio just as the iron ore boom begins to fade.

The recent drive to shut down scores of uncompetitive assets, including the Gove Alumina Refinery, has coincided with improving demand for aluminium in the transport sector, helping to ensure demand outpaced supply of aluminium in 2014 for the first time since 2005.

Almost 80 per cent of Rio's remaining smelters produce within the lowest 25 per cent of the cost curve, and Mr Barrios suggested those that do not make the lowest quartile may face an uncertain future.

Rio's aluminium division was further assisted by Indonesia's ban on raw bauxite exports earlier this year – this robbed many Chinese refineries of their prime source of feedstock and prompted bauxite prices to rise.

As the owner of the world's largest bauxite reserves, Rio not only had the cheapest access to the feedstock but was increasingly able to sell its bauxite to others at rising prices, and the company already delivers about half the bauxite imported into China.

Mr Barrios said he expects aluminium demand to grow by 4 per cent each year until 2025, while bauxite demand will grow even faster at a predicted 8 per cent per year.

Rio expects demand for aluminium to outstrip supply until at least 2019.

The attractive outlook for bauxite has the company considering a multibillion-dollar mining expansion near Weipa in Queensland, with the board set to decide on the proposal in 2015 for production to start in 2018.

Known as the South of Embley project, the expansion was initially expected to deliver 22 million tonnes per year, but Mr Barrios said the board would consider a range of options for the project, suggesting that a bigger expansion to 50 million tonnes could be considered.