ASIA – Overcapacity in the Asian flat-rolled aluminium market may last for several more years and hurt prices, forcing producers to sell more material further afield, according to Novelis CEO Phil Martens.
With China’s economy looking nowhere close to gaining significant recovery, demand is not expected to be high enough to absorb the surplus aluminium - which is mainly used in beverage cans and packaging – produced in China and washing around Asia, said Martens.
He added that the oversupply will not disappear “for the next couple of years” unless the pace of the Chinese economy quickens, noting that it was China’s decade of booming economic growth that had been fuelling demand for aluminium and investment in rolling capacity in the Mainland.
Sales of excess material have already pushed prices for specialty products and canbody sheet in Asia lower, even as Novelis expands automotive sheet capacity with investment in China and the United States.
With higher expenditure and unfavorable currency moves, the issue partially offset higher shipments and cost benefits from using scrap metal, Novelis said
Novelis, one of the world’s largest producers of flat-rolled aluminium, recently registered a 65% increase in net income to $38 million in the second quarter to end-September.
The company posted a cautious outlook, as consumption from beverage can makers slows due to waning demand for fizzy drinks, while fabricators make more heat-treat rolled sheet to supply automakers.
Fortunately, higher metal costs from soaring premiums in Japan and a recovery in London Metal Exchange prices have been presenting headwinds, resulting in prices now being at a rare premium to the Shanghai Futures Exchange and ending a prolonged period when the two markets were level and encouraging Chinese producers to sell outside of their home markets.
Martens commented, “As long as it exists, Chinese mills will go to Asia and will go global. How far they’ll penetrate, we’ll see.”
For now, Novelis is fighting the "creeping effect" of overcapacity by cutting costs by using more scrap as raw material and focusing on premium higher-priced products like automotive sheet, he said.