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October 19, 2016

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Aluminum makers to target auto, aerospace in global push

Source: Agencies | October 19, 2016, Wednesday | Print Edition

CHINA’S giant aluminum makers are pushing into the global automotive and aerospace markets, with industry sources expecting their presence to heat up competition and possibly spark a buying spree for Western metals companies.

China’s top aluminum companies are venturing into the more lucrative parts of the global value chain, on course to seize market share from the likes of Alcoa and Constellium , as they look to buy into foreign firms to boost their technical know-how and expand their reach.

The chief executive of Novelis Inc, the world’s largest maker of rolled aluminum products, said last week he expected competition with Chinese producers to be “very fierce” over the next five to 10 years in the high-value-added sectors of aerospace and engineering—which so far have been dominated by European and US manufacturers.

“Certainly (Chinese aluminum makers) will be able to produce high quality products as well,” Steve Fisher told the Reuters Commodity Summit in Seoul.

Zhongwang USA LLC, backed by Chinese aluminium magnate Liu Zhongtian, said in late August it would buy high precision aluminium product maker Aleris Corp in a deal worth $2.3 billion, marking the biggest entry by a Chinese company into the U.S. aluminium industry. 

The deal for Aleris has yet to be approved by U.S. regulators.

"If Aleris is acquired by the Chinese, it would be logical to think that there would be more competition within the higher value-added sectors such as aerospace and automotive. That's where the better margins are," said analyst Robin Bhar of Societe Generale in London. 

Shares of Amsterdam-headquartered aluminium product maker Constellium jumped after the announcement, reflecting bets that it could be next. Constellium did not immediately respond to an e-mailed request for comment.  

“There will be more announcements of purchases by Chinese companies of foreign firms in the next 18 months and continued consolidation globally,” said Charlie Durant of consultancy CRU in London.

“It will enable Chinese producers to better utilize their equipment in China, as well as obviously getting the access to markets around the world.”

Alcoa is spinning out its precision manufacturing business into a company to be named Arconic, which industry sources said could be another potential target. Arconic expects to grow its automotive sheet revenue around sixfold, to US$1.3 billion in 2018 from US$229 million in 2013.

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