improvement in the spread between aluminum prices and scrap
tags may not be in the cards for the aluminum industry in the
short term, according to Quanex Building Products Corp.
companys Nichols Aluminum LLC subsidiary continued to
face strong headwinds in the global aluminum markets as low
prices on the London Metal Exchange and high scrap tags
continued to hammer spreads, they said during a Sept. 4
conference call with analysts.
"While a minor
improvement from near-record lows is possible in the next few
quarters, a meaningful recovery in net spreads does not appear
likely in the foreseeable future," Quanex chairman, president
and chief executive officer William C. Griffiths said.
That prompted one
analyst to ask whether Quanex might seek "strategic
alternatives" for Nichols "sooner rather than later."
is running about as well as it ever has, Griffiths said. "But
clearly market conditions are very difficult, and that is
definitely impacting its profitability." He said that Quanex
continued to look for operational improvements at Nichols to
offset "severe spread pressure."
But Griffiths balked
when asked about Quanexs long-term plans for Nichols
because, he said, the company is making major revisions to its
budget after deciding to stop spending related to an enterprise
resource planning (ERP) system and to instead allocate capital
"Its a little
premature to comment on strategic alternatives for Nichols,"
Griffiths said. "I think well have a clearer view as to
what the team can do internally and ... what may be happening
to the aluminum market externally as we get into 2014and
then well make an appropriate decision."
While spreads at
Nichols are better in the third quarter compared with the same
period last year, they are down 3 cents per pound sequentially,
Quanex chief financial officer Brent Korb said. Nichols also is
focusing on recovering lost market share, especially now that
an oven at its Decatur, Ala., facility is up and running.
Nichols needs to "prove to the market that we are making good
painted product out of there," he said.
As for the ERP system,
Korb said that Quanexs "third-party implementation
partners have been notified, and by the end of September all
external ERP consulting expenditures will have ceased. It is
our goal to move ... back to our old systems as quickly as
hasnt decided whether it will use Nichols to target
potential growth in the automotive sector, Griffiths said. To
date, Quanex has not considered that option and has instead
focused on growth opportunities in its traditional markets and
short-term opportunities to reduce spread pressure.
"But I can assure you
that we will be looking here after the budgeting process at
some longer-term opportunities and at Nichols," Griffiths