Aluminum buyers just about everywhere have suspected their suppliers have been making the most of a tight market to maximize their returns this year.
Those fortunate enough to have fixed aluminum prices for the year back in early 2021 will be anxiously looking at 2022 renewals. The majority, however, will be licking their wounds following a relentless rise in aluminum prices, extended delivery times and a supplier landscape that in many cases has taken a “take it or leave it” attitude to both price and availability.
Do you use cost breakdowns in your aluminum negotiations? See other tips in negotiating with mills and service centers.
Novelis posts strong quarterly results
One of the U.S.’s largest aluminum manufacturers’ recent income announcement for Q2 2021 underlines just how well the mills have been doing.
Novelis Inc., a wholly owned subsidiary of India’s Hindalco Industries, reported a net income of $237 million during Q2 as compared to a net loss of $37 million in the prior year period.
Net income from continuing operations reached $239 million against $144 million in the prior year. Furthermore, second quarter fiscal year 2022 net income jumped 54% to $244 million.
Novelis benefitted from readily available scrap input rather than the position for many of its competitors who rely on primary ingot or slab. As a result, Novelis could increase shipments, unconstrained by a tight primary metal market.
Net sales soared 38% to $4.10 billion for the second quarter of fiscal year 2022 over $3 billion in the prior year period, primarily driven by a 5% increase in shipments and higher average aluminum prices. With sales booked through into 2022, Q4 figures are likely to be similarly bullish.
Aluminum buyers will not be surprised to read that the company’s EBITDA (earnings before interest, taxes, depreciation, and amortization – a measure of operational profitability) has risen strongly to a company record of $571 per metric ton in the quarter to September from $493 last year. That jump came on the back of higher volumes and a favorable pricing environment.
New investment in auto sheet capacity
Automotive has failed to produce the surge in demand many sheet suppliers had hoped this year — held back by semiconductor and raw material shortages. However, Novelis has announced an aggressive investment program both in China and the USA to boost auto sheet capacity. No doubt the moves comes with the expectation today’s missed auto sales is tomorrow’s sure bet.
When automotive does return to full capacity, demand will support aluminum prices that have in recent weeks seen a sharp sell-off. To date, conversion premiums have not taken a hit, with only the underlying metal price and Midwest premiums on a slide. If buyers hesitate to commit in what they see as a falling market and, as a result, mill lead times come back in, then conversion premiums will eventually follow — just as night follows day.
For now, though, Novelis is riding the crest of a wave, and enjoying the benefits of its business model and quality brand.
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