Novelis sure of a demand boom in Chinese Aluminum

Novelis Inc. is hoping that better-quality Chinese cars sold in greater numbers will lead to a demand boom for its aluminum.

As auto makers world-wide increasingly replace steel with aluminum and its alloys to make a broader range of lighter, more fuel-efficient cars, Beijing is also pushing its manufacturers to follow suit.

"It's good news for aluminum," Novelis Asia President Shashi Maudgal said during an interview Thursday, the day the U.S.-based company broke ground on a $100 million aluminum-manufacturing plant in the Chinese city of Changzhou, near Shanghai.

Aluminum is more widely used in high-end cars—a segment in China's auto market dominated by foreign brands in joint ventures with local partners.

In contrast, use of the material among domestic Chinese car makers who focus mainly on low-end, mass-market vehicles is extremely low, accounting for less than 1% of a car body's weight.

This means for now that the main customers for Novelis's aluminum in China will be foreign auto makers, who also possess the engineering know-how needed to use the material effectively.

But Novelis expects that to change and the rate of aluminum usage among makers of domestic auto brands to increase as they become more sophisticated.

Novelis estimates annual demand in China for aluminum used in making car bodies will rise to about 35,000 metric tons in 2015, from approximately 15,000 currently.

Novelis said growth in the number of cars sold in China—which the company expects to be between 5% to 10% in the next two to three years—will also underpin increased demand for aluminum.

In the January-October period, 12.6 million vehicles were sold in the country, up 6.9% compared with the same span a year earlier, according to the semi-official China Association of Automobile Manufacturers.

When operational in late 2014, the facility will have an annual capacity of 120,000 metric tons and produce enough aluminum to supply as many as one million passenger cars, the company said.

Initially, the Chinese plant will heat treat and finish rolled aluminum coils imported from South Korea. Later, the plant will be expanded in size and scope to include aluminum production.

Atlanta-based Novelis, a unit of Indian aluminum and copper producer Hindalco Industries Ltd., 500440.BY 0.00% posted a 59% drop in net income to $49 million for the three months ended in September, as income at the company's Asian and European units each fell 20%.