Rio Tinto still under pressure due to its fateful acquisition of Alcan

What is often dubbed the metal of the future for its impressive demand growth profile has been an albatross for the resources giant ever since it made that fateful 38-billion acquisition of Alcan back in 2007. Five years on and 29 billion of write-downs later and aluminum is still a highly problematic part of Rio's portfolio.

Earnings before interest, tax, depreciation and amortization (EBITDA) in its Alcan business slumped by 38 percent to 1,085 million last year.

Underlying earnings, which Rio describes as "the key financial performance indicator which management uses internally to assess performance," collapsed to just 3 million from 442 million in 2011.

The picture, however, deteriorates when it comes to the company's Pacific Aluminum business, a catch-all for the assets Rio has already earmarked for disposal.

What Rio describes as its "other operations," primarily Pacific, generated an underlying loss of 528 million last year, compared with a loss of 120 million in 2011.

Pacific Aluminum itself represents a staging post on Rio's long retreat from the aluminum business.

When first separated out of the Alcan business in October 2011, Pacific Aluminum included the Gove bauxite mine and alumina refinery in Australia, three Australian aluminum smelters, the Tiwai Point smelter in New Zealand, the Lynemouth smelter in the UK, the Sebree smelter in the US and four specialty alumina plants. The latter have already been divested. Lynemouth has been permanently closed and its previously captive power station sold. Sebree's fate is hanging in the balance after Rio rejected a proposed power rate hike by the Big River electricity cooperative.

Even smelters within the core Alcan business are coming under scrutiny. That at St. Jean de Maurienne in France, almost a century old, is up for sale ahead of an upcoming power contract renewal.

The company in essence is reducing its aluminum footprint to its core Canadian smelters, which benefit from ample and competitively-priced power supply from the Quebec hydro-electric system, plus a couple of other low-cost plants in Iceland and Oman.

When it bought Alcan five years ago, the then current consensus thinking was that even high cost smelters such as those now on the sales block would survive because the highest-cost smelters of all, those in China, would close.

RUSAL is moving its production emphasis away from its higher-cost plants in the west of the country to its bigger, lower-cost smelters in Siberia. Rio is doing the same. Which still leaves the thorny question of who precisely is going to take Rio's Pacific Aluminum business. The decision not to close the Gove alumina refinery may be key.

Yet the real benefit of keeping Gove running and converting it to gas might prove to go much further than supplying local smelters.

After all, China, the biggest global user of aluminum, doesn't need more metal. What it does need, however, is more raw materials to supply its own smelters.