25 JUNE 2013Marketwire.com
Research suggests aggressive plan to turn around aluminium industry
Edited by : AL CIRCLE
2 min read
The aluminum industry has experienced an abundance of severe challenges in recent years, resulting in a sharp decline in company valuations and profits. To reignite the value creation engine and restore investor confidence, CEOs and their management teams can pursue aggressive action plans that will turn around the industry, according to a new report by The Boston Consulting Group (BCG). The report, titled The Aluminum Industry CEO Agenda, 2013-2015: Understanding the Challenges and Taking Action, was released yesterday.
“Our analyses show that the industry’s crisis can’t be traced back to an unexpected drop in demand caused by the global economic downturn or sudden changes in the value chain’s upstream or downstream segments,” said Thomas Bradtke, a BCG partner and coauthor of the report.
“The crisis arose from the supply side, driven by China’s strategy to increase its capacity for producing primary aluminum. Producers in the rest of the world misinterpreted China’s moves and didn’t adjust their own strategies fast enough in response.”
“To become profitable and generate attractive returns for their shareholders in this environment, aluminum companies must adopt a more aggressive approach to confronting the industry’s challenges,” said Knut Olav Rød, a BCG partner and coauthor of the report.
To address overcapacity outside China, the report proposes that key players work together to create an industry leader through M&A, establish a new company to acquire marginal assets, and obtain regulatory support for their concerted actions. To alleviate overcapacity within China, the report recommends that Western companies work with their Chinese counterparts to accelerate the removal of the country's high-cost capacity while also encouraging Chinese companies to relocate their capacity to other countries.
The report advises individual companies to explore upstream opportunities in bauxite and alumina and focus on high-value or lowest-cost downstream businesses. It also recommends that companies substantially raise their game in three critical dimensions of business performance: operating and overhead costs, management of large-capex projects, and commercial activities.
“Our analyses show that the industry’s crisis can’t be traced back to an unexpected drop in demand caused by the global economic downturn or sudden changes in the value chain’s upstream or downstream segments,” said Thomas Bradtke, a BCG partner and coauthor of the report.
“The crisis arose from the supply side, driven by China’s strategy to increase its capacity for producing primary aluminum. Producers in the rest of the world misinterpreted China’s moves and didn’t adjust their own strategies fast enough in response.”
“To become profitable and generate attractive returns for their shareholders in this environment, aluminum companies must adopt a more aggressive approach to confronting the industry’s challenges,” said Knut Olav Rød, a BCG partner and coauthor of the report.
To address overcapacity outside China, the report proposes that key players work together to create an industry leader through M&A, establish a new company to acquire marginal assets, and obtain regulatory support for their concerted actions. To alleviate overcapacity within China, the report recommends that Western companies work with their Chinese counterparts to accelerate the removal of the country's high-cost capacity while also encouraging Chinese companies to relocate their capacity to other countries.
The report advises individual companies to explore upstream opportunities in bauxite and alumina and focus on high-value or lowest-cost downstream businesses. It also recommends that companies substantially raise their game in three critical dimensions of business performance: operating and overhead costs, management of large-capex projects, and commercial activities.
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