Outlook 2017: What must aluminium rolling companies focus on to gain competitive advantage?

Product differentiation, though key to earning higher margins, is difficult to achieve in the rolled aluminium product manufacturing sector. Despite discrete size rationalization, aluminium rolling companies often struggle to cope with the market competition while trying to bring in innovation in their product portfolios. As a result, they end up producing generic offerings and have to bank heavily upon post-production value-addition instead, in terms of finish and polishing. CRU, the global commodity industry pricing and market analysis firm, has recently suggested three strategic areas that aluminium rolled product manufacturers can address to gain competitive advantage in 2017. These are: the product portfolio itself, the plant equipment and raw material procurement.

Product portfolio calibration is important because there is a wide range of downstream products in the rolled aluminium products market, and their margins are dictated by the emerging fields of application, the demand generated from them, and of course supply.  In 2015, regional rolling aluminium companies, ex-China, were faced with a fierce competition as China invaded the global market with ballooning aluminium product exports. There were takers, no doubt, given the rising demand from the transportation, packaging, construction, and electronics sectors; but the margins were moderate. To realize better margins in 2017, companies should opt for a product mix adjustment following the ‘next-predicted’ market changes.


The next strategic area of product differentiation in rolling aluminium is plant or mill equipment. Raw material (primary aluminium here) and energy are the two prime cost points in rolled aluminium production. But prices of these two input factors are determined by the global demand-supply dynamics; so, manufacturers have little control over them. What they can improve upon is the mill ability which relies greatly on maintaining a tight control on maintenance cost and labour cost. No matter how minimal a percentage these factors contribute to the overall cost of production, manufacturers should see to it that their mill equipment is updated and quality controlled.  

Coming to the end user segment of rolled aluminium products, automotive industry has attracted a lot of attention over the past one year. The auto body sheet market is expected to grow further in 2017. In fact, data reveals aluminium auto body sheet demand in North America and Europe will outstrip the demand in aluminium can stock market.  However, due to high barrier to entry and capex requirements only a limited number of new entrants can be expected in the aluminium auto body sheet market during 2017-2020.

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The beverage can industry though growing at a steady all over the world displays a somewhat flat all-in production cost curve across the board. So, even if analysts remain optimistic about the growth of the industry in 2017, margins are unlikely to improve due to a sufficiently large and highly competitive supply base.

In Europe and the U.S., margins have particularly declined for beverage can sheet due to entry of a large number of suppliers. This has incited many American and European manufacturers to move into higher value automotive aluminium sheet production. Many of them have happily given up their can market shares in order to pursue the higher-margin product portfolios. This kind of portfolio shift is going to become more rampant in 2017. In China, on the other hand aluminium auto body sheet production has lagged behind can sheet market. Its can body sheet production has increased from 8% of its total production in 2014 to 11% in 2016 and this is forecasted to continue in 2017.


The cost of aluminium rolling has fallen across the globe following the LME aluminium price downfall in 2015; margins have also followed suit. These along with low scrap margins and overcapacity have forced many rolled North American and European aluminium product manufacturers to shift their product bases to high-end products catering to only niche markets. However, production of lower margin products such as can sheets will continue through 2017 due to a strong worldwide demand.

Major rolled aluminium companies that are predicted to dominate the global market in 2017 are Novelis, Arconic, Hydro (and Sapa), Constellium and UACJ. They will continue to contribute in equal proportions to the lower-end can stock market as well as to the higher-end automotive and/or aerospace market, though the focus will be more on the latter for higher value realization.

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