SOURCE: The Boston Consulting Group

The Boston Consulting Group

June 24, 2013 00:01 ET

Aluminum CEOs Can Take Actions at the Industry and Company Levels to Reignite Value Creation

Based on a Detailed Analysis of the Conditions Underlying the Aluminum Industry's Crisis, BCG Has Developed an Agenda for Aluminum Industry CEOs -- a Comprehensive Starting Point for Setting Turnaround Priorities

BOSTON, MA--(Marketwired - Jun 24, 2013) - The aluminum industry has experienced an abundance of severe challenges in recent years, resulting in a sharp decline in company valuations and profits. To reignite the value creation engine and restore investor confidence, CEOs and their management teams can pursue aggressive action plans that will turn around the industry, according to a new report by The Boston Consulting Group (BCG). The report, titled The Aluminum Industry CEO Agenda, 2013-2015: Understanding the Challenges and Taking Action, is being released today.

The report examines the challenges and outlook for demand and supply of primary aluminum and for the value chain's upstream and downstream segments. To help the overall industry and individual companies address the challenges, the report presents a comprehensive CEO agenda with ten actions items. This agenda provides a basis for setting the priorities of industry executives as well as government policymakers, whose national or regional economies are influenced by the industry's performance.

Exploring the Roots of the Industry's Crisis

"Our analyses show that the industry's crisis can't be traced back to an unexpected drop in demand caused by the global economic downturn or sudden changes in the value chain's upstream or downstream segments," said Thomas Bradtke, a BCG partner and coauthor of the report. "The crisis arose from the supply side, driven by China's strategy to increase its capacity for producing primary aluminum. Producers in the rest of the world misinterpreted China's moves and didn't adjust their own strategies fast enough in response."

"Global aluminum consumption has been driven almost entirely by China since 2000, and we expect this trend to continue," added Kai Gruner, a BCG senior partner and coauthor of the report. "China's capacity for producing primary aluminum has also grown dramatically, and its imports have declined significantly. Western aluminum companies weren't expecting this, and they expanded their capacity in anticipation of increased Chinese imports. The resulting overcapacity and high inventory have caused the aluminum price to remain at low levels."

The report also finds that developments in the value chain's upstream and downstream segments are adding to Western companies' challenges. China will likely have sufficient bauxite and alumina to meet its demand for feedstock. And Chinese manufacturers have become leading players in the global market for semifabricated and fabricated aluminum products.

An Action Agenda at the Industry and Company Levels

"To become profitable and generate attractive returns for their shareholders in this environment, aluminum companies must adopt a more aggressive approach to confronting the industry's challenges," said Knut Olav Rød, a BCG partner and coauthor of the report. "We believe this more aggressive approach must be implemented on the industry level as well as the company level. The scale of the problem is too daunting to be resolved by individual companies acting independently."

To address overcapacity outside China, the report proposes that key players work together to create an industry leader through M&A, establish a new company to acquire marginal assets, and obtain regulatory support for their concerted actions. To alleviate overcapacity within China, the report recommends that Western companies work with their Chinese counterparts to accelerate the removal of the country's high-cost capacity while also encouraging Chinese companies to relocate their capacity to other countries.

The report advises individual companies to explore upstream opportunities in bauxite and alumina and focus on high-value or lowest-cost downstream businesses. It also recommends that companies substantially raise their game in three critical dimensions of business performance: operating and overhead costs, management of large-capex projects, and commercial activities.

A copy of the report can be downloaded at

To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or

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