China’s Biggest-Ever Metals Deal Snaps Up Cleveland’s Aleris

Updated on
  • Zhongwang to win new customers in aerospace, automatives
  • Chinese company subject to U.S. Commerce Department probe

China’s influence in global metals markets just stepped up a gear after the owner of its top supplier of aluminum products agreed to buy Aleris Corp. of the U.S. for $2.3 billion, marking the nation’s biggest-ever overseas purchase of a metals processor.

The purchase of the Cleveland, Ohio-based company by Zhongwang USA LLC, owned by Liu Zhongtian, founder and chairman China Zhongwang Holdings Ltd., will open up new markets for the Chinese company among aerospace and automotive companies. Monday’s deal underscores China’s shift to higher value-added products and will give Zhongwang access to technological know-how and more demanding customers, said Paul Adkins, managing director of Beijing-based aluminum consultancy AZ China Ltd.

“Aleris supplies the Boeings and the big carmakers of this world -- very advanced consumers,” Adkins said by phone on Tuesday. “Buying it has to provide some sort of opportunity for Zhongwang to bring that know-how back to China. When you’ve got more than half of the world’s primary aluminum supply in China, there is a natural momentum for China to pull other parts of the supply chain into its orbit.”

China Zhongwang is Asia’s biggest producer of extruded aluminum, and already has ambitions to sell aluminum sheet to China’s emerging auto and aerospace industries. It’s due this year to start up a flat-rolled aluminum plant in Tianjin, near Beijing, which will supply products that China still has to import.

Operate Independently

“This acquisition is about expansion, not consolidation,” Zhongwang USA said in an e-mail on Tuesday. “The companies are complementary in terms of geographical footprints and capabilities. Aleris and Zhongwang will continue to operate independently. There is no overlap or competition between Zhongwang and Aleris.”

Aleris has its own mill in China’s Zhenjiang, producing aerospace plate “which Zhongwang lacks the know-how to produce,” Bloomberg Intelligence analyst Yi Zhu said in a report. According to Bloomberg Supply Chain data, Aleris’ customers around the world include Airbus Group, Siemens AG, Bombardier Inc., Boeing Co. and ABB Ltd.

U.S. Probe

China Zhongwang is being probed by the U.S. Commerce Department for possible circumvention of U.S. anti-dumping duties. The inquiry was launched in response to a complaint from the U.S. Aluminum Extruders Council. The company has denied any wrongdoing and in its e-mail Zhongwang USA said the investigation would have no impact on the Aleris transaction. Aleris’ chief executive officer, Sean Stack, said after the deal’s announcement that it is unlikely to face any regulatory hurdles from U.S. authorities.

Liu offered China Zhongwang the opportunity to buy Aleris directly but it declined because of concerns the deal would adversely affect its cash flow and financial planning, the Hong Kong-listed firm said in a statement. China Zhongwang said it would consider buying Aleris “as and when appropriate” after Liu’s U.S. holding has completed the deal.

“At some point in the future, the two companies may evaluate opportunities for mutually beneficial cooperation,” Zhongwang USA said in its e-mail. China Zhongwang closed 0.8 percent lower at HK$3.76.

— With assistance by Martin Ritchie, Winnie Zhu, Joe Deaux, and Jonathan Browning

(Updates with comments from Zhongwang USA in fifth paragraph.)
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