CHICAGO Noranda Aluminum
Holding Corp. remains largely optimistic on aluminum, with firm
demand for value-added aluminum products and high premiums
helping offset declining aluminum prices on the London Metal
Exchange during the first quarter, executives said in an April
24 conference call.
The Franklin, Tenn.-based
aluminum producer saw earnings slide during the quarter (
amm.com, April 24), it was able to turn a profit
despite some estimates that as much as 49 percent of global
aluminum capacity is running at break-even or at a loss,
president and chief executive officer Layle K. "Kip" Smith
Smith attributed the
companys relative success in part to the fact that it
ships more than 98 percent of its products to destinations in
the United States. "Right now, being aligned with the U.S.
economy is a very good place to be," he said.
Noranda has seen solid sales of
extrusion billet and foundry alloys thanks to strong demand
from the building and construction sector and the
transportation industry, Smith said. And in flat-rolled
products, firm demand for fin stock products has helped offset
softness in other areas, such as electrical applications, he
Noranda also saw some softness
in redraw rod, but the company thinks that is likely the result
of temporary inventory management by customers. The producer
expects redraw rod demand to be stable as the second quarter
and the rest of the year progress, Smith said. "Although we
wouldnt describe it as robust, our overall demand
portfolio was stable and our shipments were in line with
first-quarter expectations," he said.
Also bolstering results were
higher premiums for value-added and fabricated products, Smith
said. "Its something our sales team worked very hard on
during the process of renewing contracts for 2013," he said.
But Smith also conceded that the forward curve on the LME has
moved in an "unfavorable direction" and that prices over the
last four weeks have fluctuated between 82 cents and 85 cents
per pound, on par with 2012 lows.
"We are still bullish on
aluminum. ... While we dont believe these prices are
sustainable, we recognize that for the near term they are a
reality," Smith said. "As such, we are taking specific actions
to preserve liquidity."
Noranda executives declined to
specify exactly what some of those steps might be, but Smith
said they included "tightly managing" working capital and
cutting back on discretionary spending.
Still, Noranda continues to move
forward with previously announced expansions, Smith said,
noting that customer commitments for a "significant" portion of
the companys planned expanded capacity had already been
Despite the generally bullish
outlook, chief financial officer Robert Mahoney underscored the
importance of elevated premiums in a market currently
characterized by low LME prices.
Higher premiums and cost-cutting
measures spared the company from being hit as hard as it
otherwise might have been during the quarter, he said, noting
that for the trailing 12-month period ending in the first
quarter, the published average LME price declined 15 cents year
on year to 90 cents per pound.
However, Midwest premiums rose 2
cents over the same period, Mahoney added, also noting that LME
prices began to decline in mid-February. The company bases much
of its pricing on a one-month lag, meaning that first-quarter
results didnt reflect a substantial portion of the LME
decline, he said.
"Higher-value added premiums for
critical fabricated products and alloys should continue to help
in the pricing environment (where) we currently find
ourselves," Mahoney said.
Noranda recorded an average
realized Midwest transaction price of $1.03 per pound in the
first quarter, up 2 cents from $1.01 per pound in the previous
quarter but down 2 cents from $1.05 per pound in the first
quarter of 2012, it said.