Aluminum flat-rolled overcapacity in Asia will last years -Novelis

12-Nov-2014 Intellasia | Reuters | 7:32 AM Print This Post

Overcapacity in the Asian flat-rolled aluminum market may last for several more years, hurting prices and forcing producers to sell more material further afield, Novelis Chief Executive Officer Phil Martens said on Monday.

Without a significant recovery in China’s economy, demand will not be high enough to absorb the surplus sheet, mainly used in beverage cans and packaging, produced in China and washing around Asia.

Sales of excess material have already pushed prices for specialty products and canbody sheet in Asia lower, even as Novelis expands automotive sheet capacity with investment in China and the United States.

With higher expenditure and unfavourable currency moves, the issue partially offset higher shipments and cost benefits from using scrap metal, the world’s No. 1 flat rolled products maker said as it reported a 65-percent jump in net income to $38 million in the second quarter to end-September.

The oversupply won’t disappear “for the next couple of years” unless the pace of the Chinese economy quickens, he said.

The cautious outlook will reinforce concerns about a slowdown of the world’s No. 2 economy after a decade of meteoric growth that has fueled demand for aluminum and investment in rolling capacity there.

It comes as consumption from beverage can makers slows due to waning demand for fizzy drinks, while fabricators make more heat-treat rolled sheet to supply automakers.

Still, higher metal costs from soaring premiums in Japan and a recovery in London Metal Exchange prices have also presented headwinds.

Overall prices are now at a rare premium to the Shanghai Futures Exchange, which sets the benchmark for China, ending a prolonged period when the two markets were level and encouraging Chinese producers to sell outside of their home market.

“As long as it exists, Chinese mills will go to Asia and will go global. How far they’ll penetrate, we’ll see,” he said.

The company is fighting the “creeping effect” of overcapacity by cutting costs by using more scrap as raw material and focusing on premium higher-priced products like automotive sheet, he said.


Category: ResourceAsia

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