| NEW YORK
NEW YORK May 16 Weaker Chinese demand and
overcapacity in the can market will force Novelis Corp
to find new markets outside of Asia for the aluminum
sheet produced at its newly expanded South Korean rolling mills,
Chief Executive Officer Phil Martens said.
Challenging conditions in China, the world's second-largest
economy, have forced the world's No. 1 flat-rolled aluminum
producer to put investment in Asia on hold for the foreseeable
future, Martens told analysts on a conference call.
He was speaking after Novelis reported net income in its
fiscal year to end-March halved to $104 million on a slight drop
in sales to $9.8 billion.
His comments come after an aggressive expansion in the
region - Novelis will commission its automotive plant in China
this year and last October completed a $400 million expansion at
its two rolling and recycling plants in South Korea which supply
the electronics and beverage can market.
"We're comfortable with that investment, (but) we have
decided not to deploy more capital in Asia," he said.
Some 40 percent of Korean material stays in the country,
with a portion heading to countries in the region, including
Thailand and Australia, Martens told Reuters by telephone after
the conference call.
Some metal heads to Europe and the United States, but
Martens said the amount will be higher than expected. The Korean
plants will also supply coils to the Chinese plant.
The downbeat outlook will reinforce concerns about China's
economic slowdown after a decade of meteoric growth that has
fueled demand for industrial metals.
Demand for fizzy drinks in China has slowed, increasing
concerns about overcapacity of flat-rolled aluminum used to make
beverage cans, Martens said. North America and Europe are also
in surplus, but oversupply will ease more quickly than in Asia.
Novelis has been switching can sheet capacity in the United
States to automotive sheet to feed burgeoning demand from
carmakers. Automotive will account for about a quarter of
Novelis' business by the end of the decade, Martens said.
The comments are likely to fuel concerns about the impact of
record-high premiums on end users' margins and primary smelting
Premiums paid on top of the London Metal Exchange benchmark
for physical delivery of metal have skyrocketed in recent years,
hitting all-time highs this year due in part to logjams in
London Metal Exchange warehouses.
Those healthy physical premiums have helped cushion the
damage from low LME prices, hurt by massive oversupply. That has
deterred many producers from making capacity cuts that many
market participants say are needed to rebalance the futures and
Novelis, a staunch critic of the LME's handling of the
crisis over long wait times in its vast network, has said
soaring premiums related to the LME's warehousing policy cost
the industry billions of additional dollars a year.
Second-quarter premiums in Japan PREM-ALUM-JP were around
$365 million to 370 million, a record high and up a whopping 45
percent from the prior quarter. U.S. and European are also at
(Editing by Matthew Lewis)