Novelis' Earnings, Goals Point to Good Times for Rolled Aluminum

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Novelis, the global leader in producing rolled aluminum products, posted record profits last quarter totaling $62 million, compared with $50 million in the same period in 2010, according to a Novelis press release and conference call. Novelis has a pretty bullish outlook on the aluminum market, betting that demand will be hearty enough to sustain its plans for expansion worldwide.

The 24-percent year-over-year increase in profit and 16-percent year-over-year increase in adjusted EBIDTA (up to $306 million) puts Novelis in sound territory going into H2. Sales during the quarter were up 23 percent, to $3.1 billion. Novelis buys 3 million tons of aluminum per year. And according to their CEO Phil Martens, they’re just getting started.

“We are on track and on budget with all of our global expansion projects, including our Brazil and Korea mill expansions and our strategic automotive investment in the U.S., Martens said via press release. “These expansions, coupled with our debottlenecking initiatives, will add 1,000 kilotonnes of additional capacity and position us well to meet our customers’ needs today and well into the future.”

Last quarter, the company posted 767,000 tons of shipments, up 3 percent from the 746,000 tons during the same quarter in 2010.

Looking Ahead

Later, during a conference call, Martens said that Novelis “expects aluminum demand from the auto industry to increase by 25 percent by 2015, with demand from the electronics sector growing 10 percent to 15 percent and demand from the beverage can sector growing 4 percent to 5 percent. Although electronics and beverage can demand has slowed down in Europe, they’re still quite bullish on the car industry; furthermore, they indicated that expansion plans would not be hampered by global volatility surrounding stock and commodity markets.

One should look no further than my colleague Lisa’s series on The Car Wars to see that aluminum sheet and coil are taking more prominent places in the various sectors, replacing steel in the auto sphere and glass in beverage packaging.

Of course, one must also keep an eye on the rising demand and increase in price of aluminum scrap. A big part of Novelis’ strategy is to increase their use of recycled aluminum scrap from 34 percent now to 80 percent by the end of the decade, as Senior Vice President Erwin Mayr told us at the Harbor Aluminum Outlook Conference. (For an excellent rundown of Novelis’ macro outlook, click here.)

A recent WSJ article highlights the scrap shortages in copper and steel markets, as well as in aluminum, saying that it may not be until the end of the decade that we see replenishment in global scrap supply. US shredded steel scrap is up about 33 percent since last year, and finished HRC is up 25 percent, according to the article.

If anything, Novelis’ sheer size and reach across the globe is a good indicator that industrial demand in the aluminum market should only grow, as the replacement factor and rate of recycling both drive its popularity. While a good thing for producers (including the likes of competitors Alcoa and Norandal), buyers should make sure they have forward sourcing strategies firmly in place to ride out any price increases.

–Taras Berezowsky

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