Industry overview
The aluminium rolled products industry is characterized by economies of scale, with significant capital investments required to achieve and maintain technological capabilities and to meet customer qualification standards.
Worldwide consumption amounted to approximately 22.7 million mt in 2014. Europe and North America represent 21 percent of world consumption each. The five largest
producers in Western Europe supply about 85 percent of the European market. China is the largest single market, representing more than 30 percent of global consumption. Chinese production capacity continues to increase despite existing overcapacity in the Chinese market.
The export of semi fabricated and fabricated aluminium products from China to the rest of the world has steadily increased over the last years. This is partly due to export taxes that Chinese authorities have imposed on primary
aluminium, giving the Chinese semi fabricated and fabricated producers competitive prices on primary aluminium
compared to the rest of the world. Exports from China have increased further recently, driven by higher metal advantage as a result of the significant increase in premiums in other regions. In addition China is encouraging the exports of certain semi fabricated products by granting significant VAT rebates in the range of 11-15 percent for exported products. The EU, as well as some other jurisdictions, have imposed import duties on selected semi fabricated and fabricated products from China. Changes in taxes and duties both in China and in the EU or other countries may impact the development in the semi fabricated and fabricated product markets in the world outside China. See Regulation and taxation section, Aluminium regulation later in this report for more information on duties and tariffs on aluminiuim. See Risk review section, Risk factors later in this report for a discussion on our exposure to competition from China.
Hydro continuous annealing capacity # of OEM brands Hydro is qualified for 0 50,000 100,000 150,000 200,000 250,000 2020 2017 2014 2008 0 10 20 30 40 Tonnes Brands
Body-in-white capacity
Securing a strong market position and increasing returns continue to be key priorities in our Rolled Products business operations. Differentiation through innovation in products, processes and services is an important means to grow our market share and margin contribution. Measures aimed at increasing efficiency and reducing costs will continue together with efforts to reinforce safe operations and sustainable business practices.
Strategy and targets
We intend to develop and improve our market share by leveraging our preferred supplier position in the market.
Build on our strong market position
With a focus on our strong position within lithography, foil, beverage can and automotive, we will continue to emphasize the quality of our products and services to our customers in order to drive the performance of our business and pursue further growth opportunities. Differentiation through innovation remains a key strategy, supported by our dedicated R&D facilities.
Based on expected strong demand in the automotive Body in White market segment, we are investing in a new production line to lift our capacity for aluminium car body sheet four- fold to 200,000 mt per year. The new line is expected to be completed in second half of 2016.
Our goal is to generate revenue and cost improvements of NOK 800 million by 2016 compared to revenue and cost levels at the end of 2011. Supported by our Rolled Products Business System we will continue with process, productivity and cost improvement programs across our operations. We will continue to focus on efficiency throughout our operating environment and exploiting the strengths in our asset base and core competencies.
Achieve targeted improvements within "Climb" program
In addition, we will further develop our recycling activities to improve our metal cost position. The installation of a Used Beverage Can (UBC) recycling line, fulfilling both customer and environmental needs, will contribute to significant metal cost and CO2 savings from recycling post-consumer scrap.
We will continue our efforts to improve safety performance through risk reduction and enhanced leadership supported by appropriate training. Emphasis on compliance with internal directives and external legal requirements will continue together with ongoing work on risk reduction, in particular related to CSR requirements for our business partners.
Strengthen our safety performance and emphasis on compliance
0 200 400 600 800 Act. '14 UEBIT Currency effects, other Rheinwerk Cost inflation Market Cost, productivity and high- grading Act '13 UEBIT
"Climb" improvement program contribution
NOK Million
• Reduction of total recordable injuries per million hours worked (TRI) by 20 percent
• Manage margin and shipment level in uncertain Euro-zone and macro environment
• Deliver targeted improvement in the Climb program through product portfolio development, efficiency improvements and cost reductions
• Further performance enhancements in delivery reliability and lead time
• Capitalize on innovation capabilities achieving one step change during 2014
2014 targets
• Despite new initiatives and reinforcement of ongoing measures, we did not meet our targeted reduction in TRI rate which increased compared to 2013
• Some growth in shipments achieved despite a weakening market in the second half of 2014, however, average margins declined somewhat
• Achieved approximately NOK 600 million of annual improvements in the Climb program compared to cost and revenue levels in 2011, however, somewhat lower than target for the year
• Lead time performance improved due to the
implementation of innovative supply chain solutions, however, delivery reliability declined somewhat • Step changes realized with the introduction of 5 µm
record-thin gauge foil and development of new high- formability automotive alloys
2014 results
• Reverse negative trend in TRI and bring rate down by 30 percent
• Realize targeted Climb improvements through further process as well as cost improvements and cost initiatives
2015 targets
• Improve delivery reliability compared to the two previous years
• Start of production at our new UBC recycling line • Realize minimum one step change related to alloy, product
or process development supported by our innovation drive • Further increase awareness of competition regulations
though training across organization
• Progress on implementation of enhanced Rolled Products Business Partner Procedures
We are committed to safety and to eliminating accidents in our operations. We aim to increase the returns of our business operations, concentrating on operational excellence and involving all employees in continuous improvement. We will pursue growth opportunities and keep our focus on innovation and technology to sharpen our competitive edge.
Ambitions going forward
The rolling process consists of heating 600 millimeters (mm) sheet ingot to about 500 degrees Celsius and gradually rolling it into thicknesses of 3-13 mm for further processing. An alternative process, continuous casting, converts molten metal directly into coiled strip, typically 4-8 mm thick. Once cool, the thinner metal is further processed in cold rolling mills, producing various types of products including foil, lithographic sheet, sheet and strip.
Operations
Rolled products is a margin driven business based on a conversion price where the LME cost element is passed on to the customer. Contracts are generally medium term. The cost structure includes a high proportion of fixed costs, so results are volume sensitive.
Cost and revenue drivers
• World leading positions in high-end products including automotive, foil and lithographic sheet
• Largest producer in European rolling industry with estimated 16 percent market share in Europe
• Global reach with around 30 percent export for high-end markets, serving key customers in the Americas, Middle East and Asia-Pacific
• World class assets including AluNorf (Hydro share 50 percent), the world's largest rolling mill, and Grevenbroich, the world's largest multi-product finishing mill
• AluNorf, Grevenbroich and Rheinwerk smelter located in close proximity generating significant logistical advantages
Competitive strengths
Our flat rolled products operations are located in Germany, Norway and Italy. We generated approximately 75 percent of our total sales in 2014 in Europe. More than half of our
Rolling mills
Strategy and targets
Plant Country Capacity(000 mt) Main products Other characteristics
Grevenbroich • Supplied by nearby Alunorf rolling mill
• The world's largest multi-product finishing mill Alunorf 50% Germany 650 Packaging, lithographic sheet, automotive • The world's largest rolling mill
• 50/50 joint venture with Novelis
• Integrated cast house, based on remelting and recycling Hamburg Germany 180 General engineering,
automotive, heat exchanger • Integrated casthouse
Slim Italy 90 General engineering, packaging • Integrated casthouse
Karmøy Norway 85 General engineering • Continuous casting
Holmestrand Norway 90 Building, general engineering • Integrated casthouse, recycling center
Rheinwerk Germany 235 Liquid metal • Integrated casthouse
Business unit Shipments in % Key characteristics Lithography, automotive and
heat exchanger 33 • Largest producer in the lithographic products market• Serving OEMs and their suppliers with strip and sheet for body, component and chassis applications • Automotive and non-automotive heat-transfer applications
Packaging and Building 39 • Main markets include beverage can, foil packaging and lacquered building products
• Global player with lead leadership position in the high value-added liquid packaging market segment General engineering 28 • General engineering products mainly used in industrial applications
production was produced in the Grevenbroich/AluNorf rolling system in Germany, one of the most modern and efficient rolling operations in the world. Grevenbroich is the center of our packaging, lithographic and automotive sheet operations. Our production network mainly comprises the so-called "wall-to-wall" processing, including an integrated casthouse combined with both hot and cold rolling mills. Around one third of the metal used was sourced internally, based on arm's-length conditions related to LME and applicable premium prices. External supplies of liquid metal, sheet ingots and standard ingots, account for more than half of our total requirements in 2014. In addition, we recycled post-consumer scrap and pre-consumed scrap from our customers.
Rheinwerk, located in Neuss, is the largest aluminium smelter in Germany, with a maximum liquid metal capacity of 235,000 tonnes per year including one curtailed pot line. The plant supplies the near-by Alunorf rolling mill for subsequent fabrication of rolled products in Grevenbroich. The smelter is an important element of this integrated system and provides significant operating synergies.
Rheinwerk smelter
Our ambition is to leverage our position as a preferred supplier by focusing on quality, product development and innovative solutions, together with excellent customer service and overall cost efficiency. To ensure a strong market orientation, our sales function is organized centrally along business lines. This is supported by sales offices in Europe, Brazil, the US, and Singapore where we optimize market contact and sales potential.
Markets, products and customers
Our rolled products business is organized into three business units serving the different market segments in which we operate.
Lithography: Hydro is the leading global supplier of
lithographic sheet for printing plates, a market characterized by demanding requirements for surface quality, metal characteristics and mechanical properties. We differentiate our products through innovation, consistent high quality and extensive service to our customers. Key customers in this segment include Kodak, FujiFilm and AGFA. Our litho production is concentrated at the Grevenbroich plant.
Lithography, Automotive and Heat Exchanger
Automotive: We are the second-largest supplier of aluminium sheet and coil to the European automotive market for interior and exterior vehicle body parts, chassis and
component applications. Key customers include Audi, BMW, Daimler and PSA. Production is concentrated within our Grevenbroich and Hamburg plants.
Heat Exchanger: We produce a wide variety of mainly clad strip and sheet used in the manufacture of heat exchangers for passenger and commercial vehicles as well as other product applications. We are among the top producers in Europe, working with key tier one suppliers such as Mahle, Denso, Modine and Linde to develop specially adapted alloys and optimized production techniques to fit their
manufacturing processes.
Packaging: ISO certified, we serve customer needs in the rigid and semi-rigid packaging industry, offering plain and converted strip and foil in thicknesses ranging from 0.005 - 0.500 mm. We provide packaging solutions combining high-
Packaging & Building