Novelis eyes US recycling legislation to boost supply

Novelis, one of the world's largest rolled aluminum producers, plans to lobby for more US recycling legislation in order to boost supplies of scrap metal.

The company is one of three to announce greenfield US rolling mills this year, setting the stage for an increase in competition for scrap.

"As our end markets grow, and as we invest more in recycling, we have to be ready for a time lag between flows of scrap going up and our need for scrap," executive vice president and chief financial officer Devinder Ahjua said. "The need comes first and the increase in flow comes later."

Novelis' Bay Minette, Alabama, rolling mill, announced in May, will help cement the company's position as a dominant US player, but profitability of such an investment will depend on a healthy scrap supply in a country where recycling rates have long trailed Europe.

"Part of it is the work we need to do, and are doing, particularly in the US where recycling rates are low. We are working with governments, we are working with local administrations, to promote circularity legislation," Ahuja said, noting that their access to scrap in Europe and Asia was better than the US.

The call to action echoes the Virginia-based Aluminum Association, which announced earlier this year that it would more doggedly pursue deposit legislation at the state level. Only 10 US states have container deposit programs, where the government pays customers a per-unit price for returning used beverage cans. Those programs provide stable sources of recyclable raw material for aluminum rolling mills when non-deposit states have less inventory at the scrap yard level because of fluctuating scale prices, which are paid on a per-pound basis, or disruptive weather.

Results

Novelis' shipments of rolled aluminum products slipped by 1pc in the latest quarter from a year earlier, but high commodity prices boosted selling prices, more than offsetting the lower volumes.

The Atlanta-based mill shipped 962,000 metric tonnes (t) in the quarter ended 30 June, off from 973,000t a year earlier, weighed down mostly by a South Korean trucker strike and Covid-19 lockdowns in China.

"Demand remains strong in all of our end markets, but shipments were constrained by supply chain disruptions," Ahjua said.

Novelis' revenue was up by 25pc from a year earlier at $5.1bn, as many commodities, including aluminum, maintained a high quarterly average in the wake of the Russia-Ukraine conflict, which roiled supply chains around the world.

Second quarter LME cash official aluminum prices were up by 20pc from a year earlier, averaging $2,874/t, while the Argus Midwest premium for primary aluminum was 40pc higher over the same period at an average of 36.7¢/lb.

And while LME prices are down in the first few days of the third quarter compared with the third quarter 2021 average, surging energy prices in Europe and the US are likely to provide more support throughout the remainder of the year as more primary aluminum capacity comes under scrutiny. This will support rolling mill sales figures, even for those posting softer shipments.

Novelis' outlook for rolled aluminum was unchanged in its latest results, keeping predictions for beverage can market demand growth at 5pc for 2022, automotive at 10pc growth, specialty at 4pc growth and aerospace at 30pc growth, the latter still in the process of returning to historical norms following early Covid-19 supply chain shocks.

Shipments by end market were little changed in the latest quarter, with the exception of aerospace, which grew to represent 3pc of the company's shipments from 2pc in the prior quarter.

Profits jumped by 28pc from a year earlier to $307mn.

By John Betz