China Aluminum Demand Growth to Drive Price, Novelis Says
China’s aluminum demand will grow 8 to 10 percent annually on average for the next five years on uses from beverage cans to cars, driving up prices over time, according to Novelis Inc., the world’s biggest user.
“One would expect the demand in China and Asia to drive up the aluminum price, given the scarcity of aluminum that’s available to the market,” Philip Martens, chief executive officer, said in an interview today in Changzhou city, Jiangsu province, where it will build its first automotive sheet manufacturing plant in China. Prices in London may return to $2,500-$2,700 a metric ton, he said, without giving a timeframe.
China accounts for about 40 percent of global consumption of aluminum. The metal, used in construction, beverage cans, electronics and the automotive sector, has fallen 23 percent in the past year in London on concerns that the sovereign debt crisis in Europe and the moderation of growth in the largest user could result in shrinking demand.
“The economy in China, all things considered, we still see as solid and stable,” Martens said. “Within China, the basic drivers of the use of aluminum are going to continue.”
Alcoa Inc. (AA), the largest U.S. aluminum producer, reported an unexpected first-quarter profit yesterday after orders rose. The company forecasts a global deficit this year of 435,000 tons. Three-month aluminum on the London Metal Exchange climbed 0.7 percent to $2,079 a ton at 3:09 p.m. in Shanghai.
Novelis is “very bullish” on a range of aluminum usage in China, as beverage-can consumption is expected to grow rapidly in the next two to three years on “significant” capacity expansion, and the automotive sector should “grow dramatically” in the longer-term following a change in automotive designs, Martens said.
The company will invest $100 million to build Asia’s largest automotive heat-treatment line for aluminum sheets in Changzhou with an annual capacity of 120,000 tons. The plant is expected to start operations in late 2014.
“What we are seeing is a substitution away from steel to aluminum,” Martens said. “As more aluminum is used in the body structure of cars, the demand really has increased.”
The company’s global sales to the car industry may reach a record this year as “there is significant recovery in the U.S., where sales should probably hit the highest annual rate since 2007.”
China’s passenger-car sales grew 4.5 percent in March, beating analyst estimates, as dealerships increased discounts to attract buyers amid record fuel prices, the China Association of Automobile Manufacturers said today.
“Most of the product lines we provide aluminum sheets to are high-end, luxury cars, which are still very strong and robust,” Martens said.
The nation’s gross domestic product may have gained 8.4 percent in the first quarter from a year ago, according to the median estimate in a Bloomberg News survey. That compares with 8.9 percent in the fourth quarter, the slowest in 10 quarters.
“Even if the Chinese economy slows down to 6 to 7 percent gross domestic product, it’s still a significant amount of growth on a year-on-year basis,” he said.
The Atlanta, Georgia-based company produces 19 percent of the world’s flat-rolled aluminum products, and buys about 4.5 million to 5 million tons a year, including products and scrap.
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