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Warehousing hurts aluminum: Novelis exec

Keywords: Tags  Novelis, aluminum, cans, recycling, premiums, LME warehouses, Tom Walpole, Andrea Hotter

CORONADO, Calif. — Warehouse queues have caused aluminum premiums to rise and pose a threat to the industry’s long-term future, Novelis Inc. vice president and Novelis North America president Tom Walpole said in a wide-ranging interview.

Financing deals that lock up warehouse metal have led to record-high aluminum premiums, Walpole said, and while Novelis has been able to pass the cost of those premiums on to its customers, the situation likely will damage the industry in the longer term.

"It is a financial play, having that much metal trapped in warehouses and not being able to use it," he said. "We’ve been able to secure materials without having to go through the London Metal Exchange warehouse system, but when you think about the overall efficiency of the market, you’re just trapping a lot of metal that could be used for manufacturing."

Walpole noted that Atlanta-based Novelis is increasing its scrap purchases in order to reduce its dependence on primary aluminum. "We’ve found ourselves very successful at diversifying our scrap base," he said. "It has helped us on the metal side. Our dependence on primary metal isn’t as high as one might think because of this diversity."

Aluminum can bodies typically have a low primary content, but value-added products in other sectors have a higher prime base. "We are continually working to having higher-recycled content in our portfolio," Walpole said. "Other companies are doing the same; some more than others as they have strong primary base. If you have a smelter next door, you might use more primary."

Novelis purchases about 3.5 million tonnes of aluminum annually, equivalent to about 13,500 tonnes per day on a global basis, in the form of a mix of P1020 ingot, sheet from various primary producers and scrap. It also produces nearly 20 percent of the world’s flat-rolled aluminum products.

Novelis is working to achieve a recycling rate of 80 percent by 2020, Walpole said. "We’re definitely moving in that direction. We’re looking at not only used beverage cans but non-can recyclable material. We continue to work with our customers to bring in their processed materials."

The company is the largest consumer of used beverage cans, which tend to be "recession-proof," Walpole said. The company recycles some 40 billion beverage cans annually.

Novelis hopes to benefit in the transportation sector through automakers’ focus on reducing vehicle weight, Walpole said.

"The build rate is still solid—maybe not as high as 2012, but there is momentum in terms of increased use of aluminum sheet as companies focus on light-weight of cars," he said. "Lightweighting is the only thing automotive companies need to do for fuel efficiency, and aluminum is a key part of that solution."

Novelis’ industrial products business experienced a slowdown in the fourth quarter but is starting to pick up, Walpole said.

Meanwhile, Novelis is backing its faith in the flat-rolled products market for expansions. "We’re putting our money where our mouth is, with $1.3 billion to $1.5 billion going into expansions around the world," Walpole said. "We’re just skimming the surface of what the industry has to keep up with demand going forward."

The company has invested more than $200 million in two heat-treat lines for aluminum body panels at its Oswego, N.Y., facility, the company’s largest wholly owned fabrication facility in North America. "There’s strong demand for it, and we are doing everything we can to ramp up production quickly," Walpole said. The first line will be online in the summer.

The company already accounts for around 19 percent of total flat-rolled products output globally. It is the leading rolled aluminum products producer in Europe and South America, and the second-largest producer in both North America and Asia.

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