CHICAGO Novelis Inc. could take roughly a year to digest a series of new expansion projects that are coming online in the next six to 12 months, but that doesnt mean the Atlanta-based aluminum producer is looking to slow its global growth in the long term, according to its top executive.
"The market is pulling us to invest in more heat-treatment (capacity), and we will continue to invest in recycling," Novelis president and chief executive officer Philip Martens said in an interview with AMM following the release of the companys earnings results Feb. 12.
Demand for heat-treat capacity to supply the automotive sector is growing throughout North America, Europe and China, Martens said, noting that Novelis European heat-treat operations in particular are already close to capacity. The trend toward more aluminum use in vehicles for lightweighting purposes will also help drive demand, he added.
"Automotive demand is going to exceed supply for at least the rest of this decade and then probably the next decade," he said. "(Overcapacity in the automotive aluminum sector) is the least of our concerns."
In China, Novelis is already positioned for growth at its facility in Jiangsu province, where construction is expected to be completed in 2014 (amm.com, Nov. 7).
Novelis is today only using about 7 to 8 percent of its 160-acre site in China, Martens said, noting that that provides an opportunity to expand. "We have worked with (the Jiangsu government) with a longer-term view that we would like to have a larger capability and to have on one site a much larger operation," he said.
But while growth appears to be in the cards, Martens declined to specify what any future Novelis projects at the site might entail. Asked whether a hot end might be on the radar, Martens noted that Novelis first wants to make sure its current plans are a success before considering such a big investment. "Lets walk before we run," he said.
The project in China has not been without its difficulties, however. Novelis prices its metal in Asia based on the London Metal Exchange and a Japanese metal premium that has more than doubled since last June, he said. Meanwhile, Novelis flat-rolled competitors in China use the Shanghai Futures Exchange price, giving them a competitive advantage at times, he said. "That has forced some real challenges, some real margin compressions in the region ... and we need to look at these things as if they are here to stay," he said.
For example, Novelis will have to "double down" on its efforts to boost recycling capabilities and seek the best possible mix of material in China, something that growth in the automotive sector should help, Martens said.
But while China is a key growth area on Novelis radar, South Korea still remains the aluminum companys Asian stronghold. Novelis began commissioning a 265,000-tonne-per-year recycling facility in South Korea last year and continues to move forward with improvement projects at its Korean rolling mills (amm.com, Oct. 24).
"Longer-term, we will look at Korea potentially as a low-cost manufacturing place to export other products to other parts of the world," Martens said.
Novelis also continues to increase efficiencies in North America, Martens said.
"Underneath the surface," much activity at Novelis has focused on de-bottlenecking the companys hot mills, something that will help increase capacity, Martens said.
Separately, Novelis continues to work towards its recycling rate target of 80 percent by 2020 (amm.com, Jan. 23), Martens said, brushing aside concerns that the effort could affect the domestic scrap market.
"As we have gone out and increased our scrap procurements in the United States ... we have found that spreads have maintained themselves in a reasonably disciplined manner," he said.