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Monday, July 23, 2007

Aluminum needs global unity; Granges exec claims US cooperation is needed - part 1

STOCKHOLM -- The permanent structural changes required in the world aluminum industry cannot be effected without a more open, cooperative position by United States producers toward their international counterparts, according to Per-Olof Aronson, president of Granges Aluminum AB.

"We must cross the national barriers a little bit more," he said in an interview in Sweden. "It's a little bit surprising that you haven't done it to a larger extent, because the aluminum industry is very international. There are many typical multinationals in the market. Still, when it comes to physical business it is not enough."

Attention has focused on the U.S. because of the strong dollar and its impact on metal prices and the overall world economic scene. "It was not easy to foresee the impact, but many U.S. industries have not taken into account the import pressure you get from such a high dollar rate," he observed.

Cooperation and structural changes are being achieved successfully among European producers, but Aronson believes more efforts are necessary to counter the cyclical swings of the business. The U.S., which "showed the way" in product and market development, now needs to adapt to the new order on the production side, he said.

Indeed, he attributed Granges successful 1983 and 1984 first-half performance to such a strategy. The company is a net buyer of metal, and has placed its emphasis on fabrication and higher value-added products like extrusions and foil.

"If you want to avoid the worst swings in the business cycle, you have to be a net buyer," he said. "We try to avoid the most cyclical end use areas. We stay closer to the consumer."

Granges has "given up commodity sheet" because of the strong position of the Eastern Bloc producers, who hold most favored nation status in Sweden, concentrating instead on thin-gauge material, including can body stock.

Granges' smelting capacity is in Sundsvall, northern Sweden. In 1986 work will begin to retrofit the plant, increasing capacity by 10 percent to 90,000 metric tons per year, at a cost of Swedish kroner 250 million (8.6-$1 U.S.). The project involves 20,000 tons of production capacity, installing 150 KA (kiloamps) prebake pots, upgrading that output to 22,000 tons without any increase in energy consumption. Production will begin in 1987. This project, too, "reflects my thinking of the business cycle.

The second component of Granges' strategy is Sapa, its wholly owned extrusion business which combines a very strong market position in Sweden with successful product and market development work, one of the few profitable extrusion businesses in Europe, where capacity exceeds demand. "Europe uses 75 percent of its extrusion capacity," he noted.

Sapa's annual capacity is 50.000 tons, with one-third of its manufacturing and marketing abroad and the balance in Sweden. Sapa has four domestic plants: two in Vetlanda, one in Finspang and one in Skultuna: a plant in the United Kingdom: a facility in West Germany recently acquired from a bank following a bankruptcy; and one in the Netherlands in which Sapa holds a minority interest.

Granges' foil business is concentrated in two plants, one in Skultuna, the other in Helsinki. It operates two converter plants, in Skultuna and Odense, Denmark.

About 40 percent to 45 percent of Granges' business is domestic. The UK represents its principal export market, about 20 percent of its turnover. Norway, Denmark, Finland, West Germany, France and Italy take the balance.

Granges does not sell or buy in the U.S., although it does some trading, "more to improve the efficiency of our system, to make use of swapping possibilities. Aronson said, Granges is starting a "small organization" at its head office, to be called GA Trading, part of his philosophy of "opening up a little."

"The aluminum industry in general, producing companies, should do a lot more trading between themselves instead of going to traders," Aronson observed. Granges does a lot of trading with the major Norwegian producers.

Prohibitions to such an open approach, he maintains, are suspicions among producers, and it is this aspect of the industry, he believes, which is in need of change, especially in terms of the new order being created in the world marketplace.

"It is necessary that we stick more together in the aluminum industry, that you try to rebuild cooperation between various companies again, that we open up a little more," the executive said. He cited the U.S. as a key example, pointing to its need to restructure, and the inhibiting effects of anti-trust policies and trade laws.

"There is a need to get rid of high-cost production units and get some closer cooperation between the U.S. aluminum industry and metal producers abroad, like South America or Canada. That is the only way to balance the system economically," he said.

For example, Aronson suggests producers, that closed high-cost smelters, then would enter into supply contracts with some of the new producers to fill their metal needs.