China alu­minium mak­ers to tar­get auto, aerospace

Kuwait Times - - BUSINESS -

MEL­BOURNE: China’s gi­ant alu­minium mak­ers are push­ing into the global au­to­mo­tive and aerospace mar­kets, with in­dus­try sources ex­pect­ing their pres­ence to heat up com­pe­ti­tion and pos­si­bly spark a buy­ing spree for West­ern met­als com­pa­nies.

China’s top alu­minium com­pa­nies are ven­tur­ing into the more lu­cra­tive parts of the global value chain, on course to seize mar­ket share from the likes of Al­coa and Con­stel­lium , as they look to buy into for­eign firms to boost their tech­ni­cal know-how and ex­pand their reach. The chief ex­ec­u­tive of Novelis Inc, the world’s largest maker of rolled alu­minium prod­ucts, said last week he ex­pected com­pe­ti­tion with Chi­nese pro­duc­ers to be “very fierce” over the next five to 10 years in the high-value-added sec­tors of aerospace and en­gi­neer­ing - which so far have been dom­i­nated by Euro­pean and US man­u­fac­tur­ers.

“Cer­tainly (Chi­nese alu­minium mak­ers) will be able to pro­duce high qual­ity prod­ucts as well,” Steve Fisher told the Reuters Com­mod­ity Sum­mit in Seoul. Zhong­wang USA LLC, backed by Chi­nese alu­minium mag­nate Liu Zhong­tian, said in late Au­gust it would buy high pre­ci­sion alu­minium prod­uct maker Aleris Corp in a deal worth $2.3 bil­lion, mark­ing the big­gest en­try by a Chi­nese com­pany into the U.S. alu­minium in­dus­try.

The deal for Aleris, a sup­plier to the US de­fense in­dus­try, has yet to be ap­proved by US reg­u­la­tors. “If Aleris is ac­quired by the Chi­nese, it would be log­i­cal to think that there would be more com­pe­ti­tion within the higher value-added sec­tors such as aerospace and au­to­mo­tive. That’s where the bet­ter mar­gins are,” said an­a­lyst Robin Bhar of So­ci­ete Gen­erale in Lon­don. “(But) Aleris is quite a sig­nif­i­cant sup­plier to the US mil­i­tary, so it’s by no means a done deal.” Shares of Am­s­ter­dam-head­quar­tered alu­minium prod­uct maker Con­stel­lium jumped after the an­nounce­ment, re­flect­ing bets that it could be next. Con­stel­lium did not im­me­di­ately re­spond to an e-mailed re­quest for com­ment.

“There will be more an­nounce­ments of pur­chases by Chi­nese com­pa­nies of for­eign firms in the next 18 months and con­tin­ued con­sol­i­da­tion glob­ally,” said Char­lie Du­rant of con­sul­tancy CRU in Lon­don. “It will en­able Chi­nese pro­duc­ers to bet­ter uti­lize their equip­ment in China, as well as ob­vi­ously get­ting the ac­cess to mar­kets around the world.”

Al­coa is spin­ning out its pre­ci­sion man­u­fac­tur­ing busi­ness into a com­pany to be named Ar­conic, which in­dus­try sources said could be another po­ten­tial tar­get. Ar­conic ex­pects to grow its au­to­mo­tive sheet rev­enue around six­fold, to $1.3 bil­lion in 2018 from $229 mil­lion in 2013. It has al­ready signed $10 bil­lion with cus­tomers in­clud­ing Boe­ing and Air­bus.

An Al­coa spokesper­son de­clined to com­ment. “Zhong­wang have been openly pur­su­ing a down­stream fo­cus for years, but they aren’t the only ones with cap­i­tal, a healthy bal­ance sheet and an ap­petite to ex­pand down­stream,” said Paul Ad­kins, man­ag­ing di­rec­tor of Bei­jing-based con­sul­tancy AZ China.

Ad­kins pointed to China’s Hongqaio Group and Shan­dong Nan­shan Alu­minium as po­ten­tial bid­ders. Hongqaio Group de­clined to com­ment. Nan­shan’s board sec­re­tary said the com­pany hasn’t re­ceived any in­for­ma­tion about pos­si­ble merg­ers from the board.

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