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Noranda largely bullish on aluminum

Keywords: Tags  Noranda, Layle Smith, Kip Smith, Robert Mahoney, quarterly earnings, extrusion billet, foundry alloy, fin stock rod


CHICAGO — Noranda Aluminum Holding Corp. remains largely optimistic on aluminum, with firm demand for value-added aluminum products and high premiums helping offset declining aluminum prices on the London Metal Exchange during the first quarter, executives said in an April 24 conference call.

The Franklin, Tenn.-based aluminum producer saw earnings slide during the quarter (amm.com, April 24), it was able to turn a profit despite some estimates that as much as 49 percent of global aluminum capacity is running at break-even or at a loss, president and chief executive officer Layle K. "Kip" Smith said.

Smith attributed the company’s relative success in part to the fact that it ships more than 98 percent of its products to destinations in the United States. "Right now, being aligned with the U.S. economy is a very good place to be," he said.

Noranda has seen solid sales of extrusion billet and foundry alloys thanks to strong demand from the building and construction sector and the transportation industry, Smith said. And in flat-rolled products, firm demand for fin stock products has helped offset softness in other areas, such as electrical applications, he said.

Noranda also saw some softness in redraw rod, but the company thinks that is likely the result of temporary inventory management by customers. The producer expects redraw rod demand to be stable as the second quarter and the rest of the year progress, Smith said. "Although we wouldn’t describe it as robust, our overall demand portfolio was stable and our shipments were in line with first-quarter expectations," he said.

Also bolstering results were higher premiums for value-added and fabricated products, Smith said. "It’s something our sales team worked very hard on during the process of renewing contracts for 2013," he said. But Smith also conceded that the forward curve on the LME has moved in an "unfavorable direction" and that prices over the last four weeks have fluctuated between 82 cents and 85 cents per pound, on par with 2012 lows.

"We are still bullish on aluminum. ... While we don’t believe these prices are sustainable, we recognize that for the near term they are a reality," Smith said. "As such, we are taking specific actions to preserve liquidity."

Noranda executives declined to specify exactly what some of those steps might be, but Smith said they included "tightly managing" working capital and cutting back on discretionary spending.

Still, Noranda continues to move forward with previously announced expansions, Smith said, noting that customer commitments for a "significant" portion of the company’s planned expanded capacity had already been secured.

Despite the generally bullish outlook, chief financial officer Robert Mahoney underscored the importance of elevated premiums in a market currently characterized by low LME prices.

Higher premiums and cost-cutting measures spared the company from being hit as hard as it otherwise might have been during the quarter, he said, noting that for the trailing 12-month period ending in the first quarter, the published average LME price declined 15 cents year on year to 90 cents per pound.

However, Midwest premiums rose 2 cents over the same period, Mahoney added, also noting that LME prices began to decline in mid-February. The company bases much of its pricing on a one-month lag, meaning that first-quarter results didn’t reflect a substantial portion of the LME decline, he said.

"Higher-value added premiums for critical fabricated products and alloys should continue to help in the pricing environment (where) we currently find ourselves," Mahoney said.

Noranda recorded an average realized Midwest transaction price of $1.03 per pound in the first quarter, up 2 cents from $1.01 per pound in the previous quarter but down 2 cents from $1.05 per pound in the first quarter of 2012, it said.


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