Novelis at capacity, sees strong fiscal Q2 demand

Tue Aug 10, 2010 8:45pm EDT

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By Carole Vaporean

NEW YORK, Aug 10 (Reuters) - U.S. aluminum producer Novelis Inc [NVLX.UL] said on Tuesday it sees current strong demand for flat-rolled aluminum products continuing into its fiscal second quarter and beyond, and that its own shipments are limited by its capacity.

The company, based in Atlanta but acquired by Hindalco Industries (HALC.BO) in 2007 after a spin-off from Alcan Inc, projected 34 percent demand growth in the flat-rolled aluminum segment over the next five years.

The parent reported earnings last week. [ID:nSGE6720H6]

Novelis executives spoke to analysts after reporting 15 percent increase in shipments to 746,000 tonnes, a 29 percent gain in net sales to $2.5 billion, and net income of $50 million for its fiscal 2011 first quarter ended June 30.

"We saw stronger than expected demand in all four regions. As a result of the increased volume globally we recorded record results," said President and Chief Operating Officer Philip Martens.

Novelis is the world's leading aluminum rolled products producer based on shipments.

"Going forward, we expect continued strong demand across all geographic regions. Demand in the first quarter exceeded our expectations and we expect that to continue for the remainder of the year," said Martens.

"This is a growth industry and this rapid growth is coming primarily from three regions -- broader Asia, the Middle East and Africa, and South America," he said.

North America was the last region to pick up, he said, but demand increased rapidly during June, driven primarily by the automotive and electronics segments.

"I think (Novelis) will see increases in shipments in North America going forward, mainly because we will be running full out," said Martens.

The recent increased demand Novelis has seen from the automotive sector came from "the product mix from the original equipment manufacturers that has our product on it. And we do expect that to continue through the year."

Martens added that while there were swings in demand, Novelis' first quarter was "relatively strong throughout."

In Europe, Novelis saw significant increases in sales to its main automotive customers there -- Audi, Jaguar, Landrover, and BMW -- which have largely been shipping into Asia.

"There seems to be very strong and stable demand through European customers," Martens said.

The aluminum producer sees strong global demand in automotive and electronics markets driven mainly by growth in North America, Asia and South America.

While Novelis remains constrained by its capacity, it will focus capital spending efforts on "de-bottlenecking and efficiency gains," with $250 million planned for this fiscal year, compared with $101 million in fiscal 2010.

"As a result of this strong demand recovery, we are now operating at capacity. In all of our regions, our utilization rates are at all-time historically high levels," said Steve Fisher, chief financial officer.

"While we expect strong demand to continue into the second quarter, we are limited until we get additional capacity online from future expansion projects," he added.

In South America, Novelis plans to spend about $300 million over 2-1/2 years to increase capacity there by 50 percent. Martens said its development plans are on track and the aluminum maker will break new ground in the next few weeks.

In Asia, the company sees a growing population, increasing wealth and urbanization driving "explosive" demand growth.

"This is clearly an important market for us and one that will serve as an engine for future growth," Martens said, adding that it is exploring ways to increase capacity in Asia. (Reporting by Carole Vaporean; Editing by Bernard Orr)

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