Warehouse queues have caused aluminum premiums to rise and pose
a threat to the industrys 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. "Weve 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, youre 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. "Weve found ourselves
very successful at diversifying our scrap base," he said. "It
has helped us on the metal side. Our dependence on primary
metal isnt as high as one might think because of this
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 worlds flat-rolled
Novelis is working to achieve a
recycling rate of 80 percent by 2020, Walpole said. "Were
definitely moving in that direction. Were looking at not
only used beverage cans but non-can recyclable material. We
continue to work with our customers to bring in their processed
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
solidmaybe 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."
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.
"Were putting our money where our mouth is, with $1.3
billion to $1.5 billion going into expansions around the
world," Walpole said. "Were just skimming the surface of
what the industry has to keep up with demand going
The company has invested more
than $200 million in two heat-treat lines for aluminum body
panels at its Oswego, N.Y., facility, the companys
largest wholly owned fabrication facility in North America.
"Theres 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.