CHICAGO Aluminum prices
on the London Metal Exchange might not improve for a year or
more, but that wont change Novelis Inc.s plans for
growth, president and chief executive officer Philip Martens
In fact, the trend of weak
aluminum prices only serves as a catalyst for the Atlanta-based
company to push toward using more recycled material, Martens
told AMM in an interview.
Aluminum prices on the LME have
mostly fluctuated between about $1,850 per tonne and $1,900 per
tonne during the past year, Martens said, and "I dont see
any market dynamics that are going to change that over the next
12 months or so."
"Nobody has a crystal ball. ...
But weve adjusted our business to that (price level), and
thats one of the reasons weve accelerated
recycling," Martens said.
The LMEs cash aluminum
contract sank to $1,800.50 per tonne May 15, down 1.4 percent
from $1,825.50 per tonne on May 14 and down 15.2 percent from
this years high of $2,123 recorded on Feb. 15.
But as prices have fluctuated,
Novelis has simultaneously worked to boost the recycled content
of its products to 43 percent in fiscal 2013 and has seen a
"significant benefit" as a result, Martens said. The company
was running at 45-percent recycled content at the end of its
fiscal year ended March 31 and expects to hit 47 percent in
fiscal 2014, moving "into the 50s" in the year after that, he
"We certainly have built a
natural hedge as we increase recycling against whatever the LME
does," Martens said, conceding that the benefit Novelis sees
from using recycled aluminum instead of prime material drops
with the LME. But while the spread between prime and recycled
material might shrink in absolute terms, "there is a general
law of the jungle out there that you buy whatever is cheaper,
and scrap is always some percentage less than (the) LME," he
A depressed LME price
wasnt the only challenge Novelis grappled with in its
fiscal year, Martens said. The installation of a new enterprise
resource planning system (ERP) disrupted its North American
operations, costing the company about $39 million its fiscal
third quarter (
amm.com, Feb. 12).
The new system was not
"stabilized" until about the end of February but is now
"running quite well," providing greater transparency in terms
of inventory management, order flow and scheduling, Martens
said. The new system, which Martens said took about 50 percent
longer than Novelis had anticipated to install, is necessary as
Novelis looks to penetrate the automotive business this summer
from its aluminum complex in Oswego, N.Y., he said.
Novelis expects to commission
two finishing lines for automotive aluminum in Oswego this
amm.com, May 14).
"I think the benefits will
really come when we get that (automotive) business launched,"
The new SAP software system
replaces a previous "batch and hold" system that required more
manual intervention, Martens said. "Its like taking your
1990 home desktop computer and comparing it today to the
smartphone. Thats how big the difference was from the old
to the new," he said.
The other big challenge Novelis
faced this past fiscal year came from a rapid rise in local
premiums in Asia, Martens said. Regional premiums in Asia
jumped to about $220 per tonne in September from approximately
$60 to $80 per tonne in June and July, something that "nobody
anticipated," he said.
The issue proved to be a "real
challenge" to Novelis in its third and fourth fiscal quarters,
Martens said. "If the LME (price) and the (Shanghai Futures
Exchange price) are about the same and regional premiums
dont exist, everything is good," he said.
But problems arise when the
LMEwhich typically trades below the Shanghai Futures
Exchangeplus the regional premiums is greater than the
exchange price, Martens said. "Then, quite simply, the rollers
in China have an economic benefit. ... They can be very
price-competitive," he said.
Meanwhile, Martens declined to
speculate on the potential impact of high warehouse stocks and
new smelting capacity coming online, citing the difficulty of
forecasting their impact on the market with much certainty.