Heavy activity in light metal sector

Whether prompted by optimism in the direction of the global economy or a new tax law in the United States, 2018 has started off with a steady procession of merger and acquisition activity in the basic materials sector. The light metal aluminum is not being left behind in the heavy blitz of activity.

As the year enters just its second month, metals producers, processors and traders of aluminum scrap and industry analysts trying to make sense of it all are likely to see the landscape of the aluminum sector continue to change throughout the year.

Fast and furious M&A

In Europe, shortly after the new year began, Metal Trade Comax Group, based in the Czech Republic, announced its acquisition of Oetinger Aluminium Group, a manufacturer of recycled-content aluminum casting alloys based in Germany. Oetinger operates plants in Weißenhorn and Neu-Ulm, Germany, with a total production capacity of approximately 190,000 metric tons per year.

According to Metal Trade Comax, in its metallurgy segment the company currently operates scrap-fed aluminum casting alloys furnaces with about 30,000 metric tons per year of capacity. Those operations will be combined with the Oetinger assets, Metal Trade Comax the firm indicates in a January 2018 press release, to create a combined annual production capacity of about 220,000 metric tons per year.

Another aluminum M&A announcement of soon followed in the form of United Kingdom-based Liberty House’s offer to acquire the Aluminium Dunkerque smelter in northern France for $500 million from Australia-based metals and mining firm Rio Tinto.

The two parties have conducted business with each other previously, with Liberty House Group having acquired Rio Tinto’s aluminum smelter in Scotland in 2016.

Liberty House, with a portfolio that includes steel mills and metal recycling sites in several nations, has been expanding its operations rapidly this decade, including completing the acquisition of a steel mill in South Carolina in the United States in December 2017.

“The binding offer for the sale of Aluminium Dunkerque represents the best option for the future development of the site while also delivering value for Rio Tinto as we continue to streamline our portfolio,” remarked Alf Barrios, Rio Tinto Aluminium’s CEO.

The Dunkerque smelter began operations in 1991. With an annual capacity of 270,000 metric tons of aluminum, Rio Tinto describes it as one of the largest aluminum slab producers in Europe.

One week later, a foundry news website reported that a family-owned company based in Switzerland was seeking buyers for its aluminum foundry in Romania. According to the Foundry-Planet website, S.C. Alu Metall Guss s.r.l. (AMG Romania) is being put up for sale by Switzerland-based Alu Metall Guss AG.

According to the website’s post, the Romanian subsidiary was established as a new, greenfield-site foundry in 2010, but that, “Due to succession planning, the company in Romania is now for sale.”

AMG Romania has an annual capacity of approximately 2,500 metric tons of aluminum castings “when working two shifts,” according to the firm. Additionally, a foundation has been laid for a second production building, and the property offers room for six-fold expansion.

The Foundry-Planet web posting states the current owner “is looking for a party interested in taking over the entire company, including production facilities, land and business.” It defines the Romanian plant as an ideal “entry point in the European Union market for a non-EU company.”

The aluminum-related transactions represented just a slice of the basic materials M&A activity that occurred in January 2018, which also included a major bid for steelmaking assets in India and two significant containerboard mill acquisitions—one in North America and one in Europe.

Beyond M&A activity, the basic materials industry—and the aluminum sector in particular—also witnessed significant capital investment projects announced at the onset of the calendar year.

Investing in optimism

In mid-January 2018, Svein Richard Brandtzaeg, the CEO of global aluminum producer Norsk Hydro, referred to aluminum as the “fastest growing” of all base metals in an interview with the financial press. Recent investments made in the sector seem to confirm that optimism.

In late January, United States-based Novelis Inc. (a subsidiary of a larger Indian conglomerate) announced a $300 million investment in an automotive aluminum sheet finishing facility that likely will be supplied in part with recycled-content aluminum produced at a nearby joint venture plant.

“Aluminum is a growing material of choice for the automotive industry worldwide, as auto manufacturers continue to demand more and more aluminum to produce lighter, safer and stronger cars, trucks and SUVs,” stated Steve Fisher, president and CEO of Novelis.

Not all the news in the aluminum sector in early 2018 has been positive, such as consequences of the late 2017 bankruptcy filing of U.S.-based Real Alloy. At the end of January 2018, media reports indicated Real Alloy was winding down operations at its aluminum scrap-fed melt shop in Wisconsin in the U.S., idling several thousand tons per year of capacity.

However, additional announcements in both the automotive and packaging sectors point to reasons for optimism regarding aluminum’s overall place in the recycling and basic materials sectors.

A positive sign for the perceived aluminum (and aluminum recycling) automotive growth story occurred in late January, when United Kingdom-based Axion announced joining a Jaguar Land Rover initiative to further the cause of recycled-content aluminum in vehicle production.

Research and consulting firm Axion announced joining a collaborative project called REcycled ALuminium through Innovative TechnologY (REALITY), designed to examine ways to increase the use of recycled-content aluminum in new vehicles. Axion indicates its role in the group will be “to provide advice on strategies such as techniques for sorting and separating alloys and other metals including zinc, copper and brass from the aluminum in end-of-life vehicles.”

REALITY is a £2 million ($2.8 million) project led by vehicle maker Jaguar Land Rover. The project is partly funded by Innovate UK, a government agency designed to support businesses with the potential for commercial success. REALITY is an extension of the REALCAR (REcycled ALuminium CAR) project, initially launched by Jaguar Land Rover in 2008 to create a closed-loop process for post-industrial aluminum scrap from its manufacturing processes.

That project and subsequent work with suppliers enabled Jaguar Land Rover to reclaim more than 75,000 metric tons of aluminum scrap and re-use it in the aluminum production process in 2016 and 2017, according to the firm. The three-year REALITY project is intended to follow up on this earlier work.

“The REALITY project will refine the process of turning aluminum from end-of-life cars into new vehicles,” commented Richard McKinlay, Axion’s head of circular economy. Axion further indicated it will evaluate and optimize sensor-based sorting technologies by collaborating with Novelis, Norton Aluminium, Warwick Manufacturing Group, Brunel University and Innoval Technology.

On the packaging side, global beverage maker Coca-Cola Co. announced in late January its commitment to the recycling of its packaging, including aluminum cans.

While plastic bottles garner the most scrutiny from environmental activists, the pledge by Coca-Cola to “assist in the recycling of 100 percent” of its packaging by 2030 is likely to affect the handling of aluminum used beverage containers (UBCs) in some parts of the world.

On the UBC collection side, Coca-Cola indicated it will launch efforts with new partners at the regional and local level, and plans to work with its customers “to help motivate consumers to recycle more packaging.”

Even if sustainability goals of companies like Jaguar Land Rover and Coca-Cola are not followed through to completion, the financial backing of such priorities can nonetheless present opportunities to collectors, processors and traders of aluminum scrap.