Novelis: Hindalco’s Best Growth Bet

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The recent inauguration of Asia’s largest beverage can recycling plant in South Korea by Novelis Inc., a global leader in aluminum recycling and rolling, is one more feather in India’s Aditya Birla Group’s cap.

The move also underlines the soundness of a decision that group took some years ago to acquire Novelis through its flagship company, Hindalco Industries Ltd. The acquisition had also made Hindalco one of the world’s top five integrated aluminum players.

Novelis is now turning out to be a growth driver for Hindalco, no small thanks to its presence in 12 countries.

In late October, the Atlanta-based Novelis officially opened the South Korean beverage can recycling operation in Yeongju as part of its plan to boost its use of recycled aluminum in manufactured products.

The recycling plant is part of a multi-year, US$400 million expansion of Novelis’ operations in South Korea that will help increase the recycled content of its rolled aluminum products to 80 percent by 2020, from 35 percent currently.

exact aluminum prices - MetalMiner IndXThe facility has an annual output capacity of 265,000 tons. It will step up the company’s total consumption of recycled aluminum to over 1.4 million tons per year. Novelis’ target is to have a total recycling capacity of 2.1 million tons by 2015.

Phil Martens, Novelis’ president and CEO, said in a press statement that the new state-of-the-art facility in South Korea made Novelis the world’s leading recycler of aluminum, saving natural resources and enabling products with a smaller environmental footprint. Novelis’ other recycling expansions are underway in Brazil and Germany.

With the start of the South Korean plant, Novelis expects to be a major buyer of aluminum scrap throughout Asia. Used aluminum beverage cans and other aluminum scrap will be processed at the new facility for re-melting and casting into sheet ingot that will be rolled at the company’s Yeongju and Ulsan plants. At full capacity, the new operation will add around 80 positions to the company’s 1,200-employee workforce in Korea.

The downstream facilities at Novelis are primarily focused on beverage cans and auto parts, both of which have solid demand. Further, the company is into recycling and uses scrap aluminum as a raw material for producing value-added products, which is much cheaper than primary aluminum and provides a cost advantage of $130-150 per ton.

Making cans from recycled aluminum uses 95 percent less energy than manufacturing them from raw materials, such as bauxite, according to one estimate.

For Hindalco, all this is good news. Novelis is expected to be in a major earnings drive this year, especially in the face of lukewarm aluminum demand.

Sohrab Darabshaw contributes as Indian perspective to MetalMiner.

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