Aluminum companies need to take "radical steps" to survive a
market plagued by overcapacity, low prices and intense
competition, according to a recent report by Boston Consulting
"As margins dwindle,
the aluminum industry sits on a very expensive asset base that
needs higher profits to generate sufficient returns," BCG said
in the June 24 report.
missed the commodity super cycle " with
prices for the light metal, adjusted for inflation, below
levels seen in 2000, BCG said. Steel prices, in comparison,
gained more than 100 percent and copper prices as much as 350
percent, the group said.
Aluminum demand is
strong from specific countries and sectors, but consumption is
expected to remain "sluggish" in developed markets while
significant primary aluminum capacity comes online in the
Middle East and China, BCG said. Excluding China, some 6
million to 7 million tonnes of smelting capacity are expected
to be added to the market by 2017, the group said.
overcapacity, the aluminum industry should use mergers and
acquisitions to form an industry leader with the clout to slash
capacity and to push for high-cost Chinese capacity to come
offline at a faster pace, BCG said.
In addition, the
aluminum industry shouldnt seek government energy
subsidies to keep "high-cost plants marginally profitable," as
such schemes "aggravate capacity problems," the group said.
capacity is reduced, aluminum companies might do better to
focus either upstream or downstream instead, BCG said.
On the upstream side,
bauxite and alumina supplies are tighter than those of primary
aluminum, with raw material prices "increasingly decoupled"
from those for aluminum on the London Metal Exchange, BCG said.
Smelter operators, therefore, should keep "an eye toward
pursuing backward integration," including finding promising new
mining locations, it said.
On the downstream
front, aluminum companies face a globalized market where
"business will no longer be operated on a local or regional
basis," BCG said.
such as those the United States slapped on extrusions from
China, "are not likely to stop the globalization of downstream
supply," the group said, pointing to Chinese companies
expanding into finished products such as garden furniture,
picture frames and wheels.
To succeed downstream,
aluminum companies will need the most competitive offerings on
commodity items or differentiated products, services and brands
that will command premiums from consumers, BCG said. Aluminum
companies must also do a better job of understanding customer
needs to establish such premium brands.
At the same time,
aluminum companies, particularly those in mature markets, also
need to dramatically cut back on capital expenditures,
particularly on large projects that are costly during their
development phase, the group added.