London, 12 July 2011

World demand for aluminium will double in the next decade, driven by growing use in aircraft, transportation and luxury cars, the head of major European products maker Amag said on Monday. "We forecast that demand for aluminium will double within the next 10 to 12 years, so a global growth rate of 7 percent. This is a nice picture," Gerhard Falch, the Austrian aluminium group's chief executive, told Reuters.

Demand for its products has put the company on target to match or beat 2010's record year for earnings. "At least, we will be in line with the results of the record year of 2010," he said. Earnings before interest, taxes, depreciation, and amortization were 139.0 million euros ($197 million) last year.

AMAG, capitalised at $865.35 million following an April listing in Vienna, makes semi-finished aluminium products out of speciality alloys used in BMW motors, aircraft, skis, construction, and Bentley and Rolls Royce cars. It also holds a part stake in an hydro-electric aluminium smelter in Canada.

Around 85 percent of the group's products are for export, the lion's share to western Europe. It is also working to raise market share in eastern Europe, as well as in China and India.

Per capita aluminium consumption in Europe and the U.S. stands at 5-8 times that of emerging markets. Their catching up is expected to be a key driver of demand growth, he said. This year, AMAG expects global consumption of primary aluminium to rise 9 percent to 44.6 million tonnes, and that for flat rolled products to increase 8 percent to 20.0 million tonnes.

From the aircraft sector, demand is seen rising 9.1 percent, followed by transportation sector growth -- ships and railways -- by 8.0 percent, and engineering and construction growth at 5.6 percent.

"Growth in our results has come on one hand from the primary aluminium side, and on the other side it is the demand for high quality alloys for an increasing range of applications," Falch said.

In particular, he said the European auto sector has not just stabilised but also fired up, alongside demand for lighter and more highly specialised aluminium-based materials. Passenger car sales in the European Union rose 7.1 percent in May, auto makers' association ACEA said in June, although volumes remained below pre-crisis levels.

"Aluminium has a growing trend in cars, (due to) new applications with alloys, in the structural parts of the car for example which could not be delivered five to 10 years ago," he said.

One example is a new premium model, manufactured in southern Germany, slated for release next year. He declined to name the maker. "The aluminium content has gone from 2 percent only, and the next model will have 20 percent," he said. Aluminium is used in car bodies, and increasingly in engines and other areas such as power chains and gear boxes.

In 2010, Amag produced around 220,000 tonnes of rolled and cast products. It plans to expand capacity to around 280,000 tonnes by 2014. In the first quarter its metal division shipped 22,235 tonnes of aluminium.

HEDGING

"The price of LME is very volatile, (but) we are still optimistic that the mid-term demand for aluminium is high," Falch said. Aluminium hit its highest in almost three years above $2,800 a tonne in May although it has subsequently fallen by 10 percent to $2,508 on the London Metal Exchange.

Amag limits its exposure to LME price fluctuations through its hedging programme. For primary aluminium it is 100 percent hedged for this year, 75 percent hedged for 2011 and 50 percent hedged for 2012. Downstream products are 100 percent hedged.

Costs of production at the firm's Canadian smelter, a joint venture with partners including Rio Tinto Alcan Norsk Hydro and Japanese trading house Marubeni, are in the lowest quarter among world producers, Falch said.

Ends --

Reuters – for Commodities Now.