Throwback 2016: Developments that moulded the downstream aluminium sector

The year 2016 is marked by a continued slowdown in primary aluminium sector in the west and a distinct shift towards value added applications in aluminium.   Aluminium producers around the world fought out to find ways and means to survive the slump in the commodity market. Cost cutting, energy efficiency and value added applications became the priorities for aluminium makers. Despite the bearish metal market, aluminium demand situation remained buoyant, especially because of the growing automotive and aerospace market.  Downstream sector was characterised by a number of significant expansion, divestment and merger. Controversy, allegations and investigations created ripples in the aluminium downstream market in the east and west.  Let us look back and analyse how these various developments moulded the downstream sector in 2016.

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Downstream expansion, mergers and spin off

1. Lightweight metals leader Alcoa has unveiled the name, logo and tagline of its future Value-Add company “Arconic. Innovation, Engineered” in March 2016. The “Arconic” brand represents the future Value-Add company’s iconic heritage and continued commitment to industry-shaping innovation.  Over the year, the company completed all the formalities related to the spin off and by November 1 the company completed the demerger and Alcoa Corporation (the upstream business)spun off from its parent company Alcoa Inc- now named and listed as Arconic Inc (ARNC).

2. In March 2016, Constellium N.V. signed an MoU JV with its Japanese partner UACJ Corporation (UACJ) to expand their existing joint venture to produce automotive Body-in-White (BiW) sheet in the U.S. Both the firms planned to be a leading player in the North American BiW market, combining strengths in technology, know-how and customer relationships.  Constellium N.V. also announced in July about opening a new manufacturing facility in Mexico to produce aluminium automotive structural components.

3. In March, China Zhongwang Holdings Limited, the world's leading processed aluminium product developer and manufacturer, announced details of the proposed spin-off of the Group's industrial aluminium extrusion business. With the completion, the company expected to concentrate more on the fast growing deep processing business and the flat rolling business in 2016. China’s top aluminium extrusion producer pinned hopes on the automotive sector for pulling up demand for aluminium extrusions, reported sources close to the company.
 
4. Aluminum Corporation of China (Chalco) also decided to focus on aluminium applications in transportation and construction sectors. The company signed cooperation agreement with several automakers over R&D in automotive aluminium alloy new materials.
 
5. For Novelis, Inc, a world leader in rolled aluminium products, automotive sheet business has been the biggest growth driver.  In May, the company commissioned its third finishing line in Oswego, lake Ontario, in upstate New York to cater to the rising demand for aluminium in the auto industry. The plant would produce high-strength aluminium alloy for Ford's new F-Series super duty line of trucks. Novelis strategic partnership with the likes of Jaguar Land Rover and Audi drove business for the firm in 2016.

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6. Hindalco managed to stay ahead in competition due to its significant strides in converting the primary metal into value-added products. The fourth quarter of 2015-16 saw a 28 per cent rise in Hindalco's production of flat rolled products and extrusions. The $6-billion acquisition of Atlanta-based Novelis in 2006 catapulted Hindalco as the global leader in high-end aluminium flat products. Much credit goes to Novelis for making Hindalco profitable with its automotive shipments.

7. Aleris entered into a new multi-year contract with Airbus to supply a range of aluminium products such as plate and sheet for use in the making of all Airbus aircrafts in July 2016. The contract, to be effective from 2017 onward, also includes the supply of high-end wing skin material by Aleris.

8. In the same month, AMAG, another leading Austrian premium supplier of high-quality aluminium cast and flat rolled products for aerospace, automotive, construction and packaging industries, announced the signing of a multiyear supply contract with Airbus to supply aluminium plate, sheet and coil for all Airbus aircraft programs.

9. In May, Japan’s Kobe Steel announced their plan to sell aluminium extrusions for the automotive sector in the U.S. through a company called Kobelco Aluminium Products & Extrusions Inc. in Kentucky.

10. Nalco started developing an Aluminium Park in Angul, in collaboration with IDCO to support downstream and upstream industries and the company is encouraging the development of the ancillary sector for increasing downstream applications.

11. The facility at the aluminium company Hydro´s plant in Grevenbroich, Germany, started operation in December 2016 to produce first coils for customers at automotive line 3 (AL 3) in the plant.

12. Vedanta owned Bharat Aluminium Company Limited (Balco) resumed sheet rolling operations at its Korba facility in Chhattisgarh, India in July. This marks the metal major's comeback in the rolling aluminium products business that was held up about a year ago.

Chinese Syndrome:  Gradual entry into downstream aluminium and export glut

After creating a monopoly in the market for primary aluminium, China ventured into the high value added segment for the metal throughout 2016. Major aluminium producers invested in aluminium value added applications and ventured into the western market. Chinese export of semi-finished and finished products to U.S. and Europe shot up in 2016. While the Chinese smelters continue to produce more and more aluminium, the country also expanded the rolling mills capacities to produce higher-end products. This has created serious concern among the aluminium producers in Europe and the U.S as cheaper and sleeker aluminium semis from China flooded those markets.

1. The most surprising and unexpected step so far was when Chinese aluminum entrepreneur Liu Zhongtian of China Zhongwang announced the acquisition of  Aleris Corp. U.S. for $2.3 billion in September 2016. The deal gives the owner of Asia’s largest producer of extruded aluminium a smooth access to American and European technology, as well as the market which is dominated by high profile buyers Boeing Co. and automakers such as Audi.
 
China Zhongwang established technical cooperation with many Chinese automakers to jointly develop all-aluminium coaches. The company has also been producing all-aluminium auto body frame extrusions for BYD Auto, China’s top new energy vehicle manufacturer. In August, the company announced its Tianjin facility succeeded in rolling 7055 aerospace aluminium plates in different specifications. The company has been eyeing the North American automotive and aerospace market and the acquisition of Aleris was the final step in the strategy.  China Zhongwang boasts an annual capacity of more than 1 million tonnes of extrusion products.
 
2. Shandong Hongqiao New Materials Co., fully-owned subsidiary of China Hongqiao Group, Acquired a local aluminium processor Loften Environmental Technology Co. to expand its aluminium product businesses.
 
3. China’s production of semi-finished aluminium products like profiles and plates was 8.04 million tonnes in the first two months of 2016, up 12.7 per cent from a year earlier. The total aluminium semis export of the country grew 40.29 per cent year-over-year to reach 106,025 million tonnes (mt) in August 2016. During January-August period, the same surged 12.6 per cent YoY to total at 795,826mt. This includes aluminium bar, rod, and profile.

China aims to expand aluminium demand by 18 per cent in the next three years and boost high-end application in transportation and construction industry.  Being one of the top exporters of aluminium, China has been facing a number of allegations regarding unethical export to U.S. and Europe.  China Nonferrous Industry Association said that the country planned to increase consumption by 6 million tons. In June 2016, China’s State Council issued certain guidelines for the industry including putting limitation on new capacity, encouraging mergers and acquisitions, offering tax breaks and building stockpiles. The council’s policy is designed put restrictions on random export and to help the industry cope with a slowdown in demand growth.  

Charges and investigations

1. In March, the U.S. Department of Commerce started investigation on an allegation by the U.S. Aluminum Extruders Council that a Chinese aluminium extruder evaded U.S. import duties. The DOC confirmed that 5050 alloyed aluminium extrusions are not specifically targeted by its orders. However, it initiated an anti-circumvention investigation in order to determine if there is any circumvention of AD/CVD duties in the imports of 5050 alloyed extrusions.  Aluminium Association and all the major aluminium producers in the U.S. stood in support of this case.

2. In November, the U.S. Department of Commerce preliminarily determined that Zhongwang used heat-treated 5050 alloy aluminum extrusions to avoid duties. In its determination, Commerce concluded that this alloy grade was never intended to be used in extrusion applications and that Zhongwang had engaged in this activity solely to avoid duties. The Department will issue its final circumvention determination no later than January 9, 2017.

Innovations and Developments

1. Novelis was awarded the prestigious European Aluminium Award at the ALUMINIUM 2016 Trade Fair. The award was bestowed upon Novelis for its work in automotive aluminium innovation on the REALCAR (REcycled ALuminium CAR) project in collaboration with Jaguar Land Rover.  The REALCAR program by Jaguar Land Rover,  is a multi-stakeholder initiative established to create a closed-loop vehicle production model that recycles automobiles at the end of their lifecycles. Novelis AdvanzTM s5754 RC was first introduced in the Jaguar XE series in February 2016and is now featured in all new and legacy Jaguar Land Rover models.

2. Emirates Global Aluminium’s (EGA) Al Taweelah smelter is all set to start delivering molten aluminium to Ducab Aluminium Company in Khalifa Industrial Zone Abu Dhabi (Kizad) via a dedicated hot metal channel.  This is a part of EGA’s project that was initiated as a means of cutting cost and in order to develop a competitive aluminium value added segment in UAE.

3. In July, Lightweight metals leader Alcoa opened its state-of-the-art, 3D printing metal powder production facility at the Alcoa Technology Center, to produce proprietary titanium, nickel and aluminum powders optimized for 3D printed aerospace parts. 3D printing is going to bring up revolutionary changes in the aluminium processing procedure replacing the conventional casting technology.

4. Lightweight metals leader Alcoa has been awarded a five-year contract from the U.S. Army worth up to $50 million for R&D projects focused on developing innovative, lightweighting solutions for ground combat vehicles.

5. Constellium was awarded a contract with TARDEC, the US Army Tank Automotive Research Development and Engineering Center for aluminium armored vehicle solutions.

6. In India, the Jawaharlal Nehru Aluminium Development and Design Centre (JNARDDC) is working towards development of aviation grade alloys for the Indian Air Force (maintenance command) as a part of the indigenization process and the 'Make in India' initiative of the government. It will also be setting up an aluminium extrusion plant in the centre.

The industry demand outlook for the aerospace and automotive industry is very positive. In 2017, most of the downstream product manufacturers are expecting a double-digit value added revenue growth.  In order to capitalizing on these growth opportunities, aluminium manufacturers in the West as well as the East would continue to invest to improve efficiency and overall throughput.

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