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Novelis to expand despite challenges

Keywords: Tags  Novelis, Philip Martens, Steve Fisher, aluminum rolling, heat-treatment capacity, recycling, aluminum can, automotive aluminum

CHICAGO — Novelis Inc. continues to move forward with expansions to its rolling, heat-treatment and recycling capabilities worldwide despite headwinds in Asia and a competitive can market in North America, company executives said.

By fiscal 2017, the Atlanta-based aluminum company should have a rolling capacity of about 3.7 million tonnes, Novelis president and chief executive officer Philip Martens said May 14 during a conference call with analysts.

The Atlanta-based company’s expansion of its rolling facility in Pindamonhangaba, Brazil, is "nearly finished" with customer qualifications and began shipping coils to customers last month, Martens said. The expansion will increase the facility’s aluminum sheet capacity by 50 percent to more than 600,000 tonnes per year (, Aug. 14).

Rolling expansions in South Korea also are expected to start the commissioning process in mid-summer—"a bit earlier than we expected"—and to eventually boost rolling capacity by another 500,000 tonnes, Martens said.

On the automotive front, Novelis remains on track with plans to bolster heat-treatment capacity at its operations in Oswego, N.Y. (, May 14).

The company also broke ground in November on its first automotive heat-treating line in China and "remains very excited about the automotive opportunity in the broader Asia region," Martens said. The finishing line in China should be online by the end of 2014, he noted.

The automotive segment might be the smallest of the Novelis business units today, but it is expected to see "explosive growth" going forward, according to Martens.

The company expects to see a compound annual growth rate of 25 percent for automotive aluminum from 2012 to 2017.

On the can front, Novelis posted record shipments in South America as the region experienced the highest levels of can stock demand the company has ever seen, Martens said, noting that Novelis’ operations in the region are performing "very well" and are "running at full capacity."

In Brazil, for example, Novelis is the only integrated can sheet producer, something that should bode well for the company ahead of the 2014 Fifa World Cup and 2016 Summer Olympics, he said.

Overall, Novelis expects to see a compound annual demand growth rate of 4 to 5 percent for aluminum beverage cans.

The situation in Brazil, however, is better than what Novelis faces in a "very competitive" North American can market burdened by excess capacity, senior vice president and chief financial officer Steve Fisher said. "As a result of this, we saw some pricing pressure with the renewal of some existing customer contracts," he said.

Regionally, Novelis is also seeing downward pressure on prices in Asia as a result of big increases in local market premiums that Chinese suppliers aren’t subject to, Fisher said. "Therefore, our Chinese competitors are able to purchase at a significantly lower price, which has forced us to lower our prices to remain competitive," he said.

Martens also noted that prices have been hurt by slower growth in China than had been anticipated.

Novelis is looking to offset those headwinds by boosting its use of recycled content at its operations in Yeongju, South Korea, the executives said. The company opened Asia’s largest aluminum beverage can recycling facility in Yeongju in October (, Oct. 24).

Separately, the company broke ground in November on what it predicts will be the world’s largest aluminum recycling center in Nachterstedt, Germany (, Nov. 27).

Also challenging Novelis are "higher inventory levels than we would like," Fisher said, not only because of the commissioning and start-up of facilities but also because of lower sales and disruption caused by implementing a new enterprise resource planning (ERP) system in North America (, May 14).

Novelis expects to see continued "solid demand" in the future from its key markets, Martens said.

However, while the company expects better shipments in its next fiscal year, it doesn’t expect that to translate into higher earnings before interest, taxes, depreciation and amortization (Ebitda), he said, citing continued pricing pressure in some regions, start-up costs and inflationary pressures.

Fiscal 2014 is "still another transitional year" with a significant set of global investments, Martens said.

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