Novelis targets 50% recycled content by 2015

Novelis, the overseas subsidiary of aluminium maker Hindalco, is betting big and moving fast on recycled content.

The company is targeting to reach 50% of its production through recycled aluminium material, or scrap, by 2015.

This will help the company in taking advantage of the price arbitrage between aluminium and scrap and is in line with the company’s strategy to reach a recycled content capacity of 80%.

“Novelis’ investments have been strategically geared to leveraging growth opportunities in the emerging markets, to capture the increasing emphasis on light-weighting in the automobile industry, and recycling in all the four operating regions,” said Kumar Mangalam Birla, chairman of Hindalco during the company’s 53rd Annual General Meeting on Tuesday.

He said for the current year, the subsidiary took significant initiatives and increased recycled content in its production to 39% from 34% the previous year.

Analysts feel this will not offer a major value accretive as both scrap and aluminium always adjust themselves to a common price platform whenever there is a price arbitrage, albeit with a lag.

“While there could be some technological advantages, the price arbitrage is not sustainable over a long period,” said an analyst with a domestic brokerage.

He said the advantage with Novelis is that it operates in the high premium value-added segment, and is substantially investing in upgrading capacity world over.

Novelis, which makes manufactures automotive sheets and aluminium cans, currently has greenfield projects in Brazil, Korea and the US. It is planning to spend up to $650-700 million in capital expenditure for various expansions in the current year, its highest ever, said the company’s annual report. All its expansions are expected to be over by 2013.