--Novelis CEO expects aluminum price to hold near current levels for 9-12 months
--Company is using more recycled aluminum
--Novelis reports quarterly income of $91 million, up from $62 million a year earlier
(Adds recycling strategy, market outlook, expansion plans and auto shift details)
Aluminum prices are likely to stay near their current low levels for the next nine to 12 months, pressured by a supply overhang of the lightweight metal, the chief executive of aluminum products maker Novelis Inc. said Tuesday.
Benchmark aluminum prices on the London Metal Exchange have traded near two-year lows for weeks, on a surplus of metal and production capacity, as well as on worries about demand amid slowing growth in China and the financial struggles in the euro zone.
Aluminum for delivery in three months recently traded at $1,849 a metric ton, down from almost $2,600 a metric ton a year ago.
Prices are likely to "hover at this level" for as much as a year, Novelis Chief Executive Phil Martens said in an interview. He said the smelter shutdowns some aluminum makers had announced in an effort to avoid lower prices were helping to balance the market, but "we just don't see the market dynamics pushing (prices) back to the $2,600 level."
Novelis, Mr. Martens said, was trying to limit its exposure to LME pricing by using more recycled aluminum. Low prices are "just a reminder that the strategy we're on is the right strategy. We're beginning to see the resilience in our business model."
The company expects to boost its use of recycled aluminum, which costs less than new metal, to 80% by 2020. The benefit from using recycled material was limited this year, Mr. Martens said, as LME prices fell closer to the cost of scrap.
Mr. Martens said he was most confident in automotive and can demand for the balance of 2012, and more cautious toward the outlook for consumers in the electronics and construction sectors. Novelis supplies companies such as Coca-Cola Co. KO +0.20% , Ford Motor Co. F +0.43% , and Samsung Electronics .
Atlanta-based Novelis on Tuesday reported a 20% increase in net income during the three months ended June 30 as lower costs made up for declines in shipments and sales. During the fiscal first quarter, Novelis reported net income of $91 million, up from $62 million during the same period a year earlier.
Aluminum shipments fell 6% from a year ago. Revenue slumped 18%, to $2.6 billion on the decline in shipments and lower aluminum prices.
The company expects to report negative free cash flow, or operating profit less investments and asset sales, to be negative through 2012 as the company invests in expansion projects. Novelis expects capital expenditures of $650 million to $700 million during the fiscal year that started in April, from $516 million the prior year, as it expands rolling mills in Brazil and South Korea and automotive capacity in the U.S. and China.
Novelis has shifted its focus away from lower-margin businesses such as foil, selling or closing plants while refocusing products for the automotive and electronics industries. Automotive business now totals about 10% to 12% of the company's shipments, Mr. Martens said, up from 6% to 7% a year ago. Beverage and food cans account for more than half of the company's shipments.
Novelis is a unit of Indian aluminum producer Hindalco Industries Ltd. . Novelis is the world's largest producer of rolled aluminum, which is used in beverage cans, packaging, automobiles and electronics, among other applications.