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Global consolidation in aluminium industry - Views on News from Equitymaster
 
 
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  • Aug 12, 1999

    Global consolidation in aluminium industry

    Alcan of Canada, Pechiney of France & Algroup of Switzerland, the three largest international producers of the metal, aluminium, announced a planned merger to form the world's largest aluminium-producing firm. If the proposal passes muster with the regulatory authorities, Alcan will hold 44% of the new firm, Pechiney 29% and Algroup 27%. p>The new group, to be known as Alcan-Pechiney-Algroup, plans to lower its cost of production by reducing the number of employees over the next two years by approximately 5% from a current combined strength of 90,000. This merger will also help the three companies to take Alcoa, the current market leader, head on and gain new market share .The merger will also result in an estimated cost saving of $600 m over a span of two years, according to the joint statement of the three companies.

    The Southeast Asian crisis and the consequent slowing down of the world economy took its toll on demand for aluminum. The shrinking margins for aluminium companies led to some consolidation in the industry. This consolidation will help companies in cutting down costs and avoiding a fall in margins.

    Since the beginning of this year there has been recovery in demand and a consequent firming up of prices in the global markets.

    The new group will be known as Alcan-Pechiney-Algroup and will produce 2.6 m tonnes of the metal per annum or 9% of the global supply. This will not have much positive effect in supporting the metal price at a global level, as this segment of the industry would continue to remain fragmented and witness competition from a large number of players.

    The merger could however have a positive impact on alumina prices as the combined entity will have a market share of 15% of the global alumina production. Together with the market leader Alcoa, which has a 25% market share, the two companies would control 40% of the market. As this would reduce the number of suppliers of alumina, it could lead to more aggressive pricing strategies for the industry.

     

     

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