Not just aluminum, Novelis Aluminum.TM
Earlier today in Washington, D.C., I gave the following oral testimony on behalf of Novelis Inc. before the U.S. Senate Committee on Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations for a hearing on Wall Street banks’ involvement in physical commodities holdings.
Nick Madden, Senior Vice President and Chief Supply Chain Officer, Novelis Inc. testifies before the U.S. Senate Committee on Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations for a hearing on Wall Street bank involvement with physical commodities on November 20, 2014 in Washington, D.C.
Chairman Levin, Ranking Member McCain and members of the Subcommittee, I appreciate the opportunity to be here today to speak with you and to answer your questions. My name is Nick Madden, and I am the Senior Vice President and Chief Supply Chain Officer for Novelis. We are the world leader in aluminum rolling and recycling and we are the largest buyer of aluminum – and I am responsible for that buying. I have 36 years of experience in the industry.
For the last three and a half years, we have been very public in our advocacy to restore normal functioning to the London Metal Exchange (LME) warehousing practice. The warehouse issue is having a profoundly negative impact on our customers’ businesses, including beverage companies like Coca-Cola and Anheuser-Busch; automakers like Ford, General Motors, Chrysler and BMW; and consumer electronics manufacturers like Samsung and LG. As an aluminum roller, we seek to keep ourselves neutral in movements in aluminum pricing, but last year, our Asia operations took a $40 million dollar hit as a direct result of this issue.
The consequences are equally serious for consumers in the United States.
Supply and demand in the aluminum market has been completely upended in recent years. Since 2010 when the banks and trading companies bought the warehouses, aluminum premiums have tripled. Now premiums are at their highest ever, while at the same time stockpiles are at their highest ever – a situation that is unprecedented in the history of this global market.
For companies like us, we have three issues:
- First, inflated premiums – we estimate that consumers are paying $6 billion more than they should.
- Second, supply chain risk – if I buy metal from Detroit today, I have to wait until September 2016 to pick it up.
- And third, price exposure – with the premium at 20 percent (no longer 5 percent) of the price, we can’t manage price risk effectively.
The most serious issue is the inflated costs. Whether it’s for a truck or a smart phone or a beverage can, the American consumer will ultimately pay the price; we liken it to a tax on the price of modern aluminum products.
All this is happening at a time when the aluminum industry is in a very healthy situation. We see growth around the world, but most exciting is the growth in the automotive sector in the United States. Novelis has invested $400 million to meet that growth, and has added 375 highly- skilled jobs in our plant in Oswego, New York.
So you can imagine our frustration when we see threats to our supply chain and to the competitiveness of aluminum as a result of what appears to be an “engineered squeeze” in our market.
While the LME has finally begun to act, progress is slow and the situation on the ground is only getting worse.
So, what’s the fix? What I would like to see – if I had a magic wand – is the following three things happen – for the benefit of our company, our industry and the American consumer:
- First, banks and trading companies should not be allowed to own warehouses.
- Second, we need to clarify the scope of the U.S. Commodity Futures Trading Commission (CFTC) to ensure it covers warehousing.
- And third, warehouses should be prohibited from charging rents for commodities like aluminum when they’re in the queue.
Again, as the world’s largest buyer of aluminum, and on behalf of Novelis, I thank you for this opportunity. I would be happy to answer any questions.
You can also download Novelis’ full written statement submitted to the Permanent Subcommittee on Investigations.
Just in time for America Recycles Day on November 15, we’ve pulled together our top 10 recycling facts about aluminum. As you can see, recycling matters, and these facts help remind us why. Please remember to recycle.
The safety of those around us is always top of mind at Novelis, as thousands of members of our Novelis family work in recycling, casting and rolling plants around the world each day. We know that safety requires a solid framework, attention to detail and surrounding yourself with people you trust.
That’s why nearly 300 Novelis employees in Atlanta, GA, USA and Seoul, South Korea decided to bring safety home this month for families in Asia all the way to North America. Working with their local chapters of Habitat for Humanity, the teams set out to build safe, sustainable housing for families in need of a hand up, not a hand out.
Read more »
The following article was originally posted on the Forum for the Future website here and is the third in a mini-series of guest blog posts by industry experts focused around recycling and the circular economy. You can also read the first in the series by John Gardner, Vice President and Chief Sustainability Officer at Novelis here.
The growth model favored by economies and indeed most companies for the last 250 years – based on the availability of plentiful and inexpensive natural resources – is living on borrowed time and, so are companies that rely on it.
Since the industrial revolution, waste has constantly grown. This is because our economies have used a “take-make-consume and dispose” pattern of growth – a linear model, which assumes that resources are abundant, available and cheap to dispose of.
A circular economy takes into consideration how valuable materials are leaking from our economies. In a world where demand and competition for finite and sometimes scarce resources will continue to increase, and pressure on resources is causing greater environmental degradation and fragility, we can benefit economically and environmentally from making better use of those resources.
For businesses and their top executives responsible for setting the direction of their firms, this leads to one inescapable conclusion: continued dependence on scarce natural resources for growth exposes a company’s tangible and intangible value to serious risks. This is due to:
- Revenue reduction: Supply uncertainties and changing consumer preferences could prevent companies from generating revenues and maintaining market share. For instance, companies that depend heavily on scarce resources might have to shut down production at times and be unable to deliver demanded volumes.
- Cost increase: Companies whose growth is tightly tied to scarce resources will find themselves at a competitive disadvantage due to rising and volatile prices that reduce their ability to forecast and compete with less resource intensive competitors.
- Intangible assets: A company’s environmental footprint and resource dependence could erode brand value as consumers shun companies with unsustainable business practice. And, as planetary bottlenecks and resource scarcity become more critical, policymakers will likely favor companies that can prove they have positive societal impact and can operate without depleting the country’s natural resources.
Decoupling growth from use of scare resources
In a circular economy, growth is decoupled from the use of scarce resources through disruptive technology and business models based on longevity, renewability, reuse, repair, upgrade, refurbishment, capacity sharing and dematerialization.
Companies should no longer focus mainly on driving more volume and squeezing out costs through greater efficiency in supply chains, factories and organizations. Rather they should concentrate on rethinking products and services from the bottom up to future-proof their operations to prepare for inevitable resource constraints.
Procurement is today characterized by bringing value to the company through the traditional transactional approach. In the future I believe procurement professionals will have an important role in bringing in new innovations from the suppliers. This demands a collaborative and innovative relationship
Supply chains are getting more complex every day in terms of the number of involved partners and the quality and degree of interdependency between them. One of the predictions in relation to the integration of circular procurement is that complexity will increase.
We also have to remember that businesses have to operate in a globalized world where the volatility of markets, the speed of technological progress and the pace of change, in the economic and business environments, will continue to rise rapidly. As a result, product life cycles are getting shorter and market demands become more and more unpredictable.
Collaboration with all types of partners, and their willingness and ability to share their knowledge, will be crucial and key to a successful development and integration of circular thinking.
Great opportunity with high potential for procurement
Missing an important trend and the threat of being commoditized have become substantial risks of every company. This provides a great opportunity for procurement to take the lead on circular innovation. Procurement has to ensure that supply partnerships emerge from a pure cost orientation towards a strong focus on joint collaboration and innovations.
In many companies it is typically a challenge to include suppliers in the front end of the innovation process. Procurement teams are often disconnected from the functions they serve and the markets they engage with. They are not fluent in the nuances of the business and hence lack experience and authority. Also, in many companies, procurement are used to “innovation” being an internal capability and are hence not used to working together with external partners on delivering innovation.
The key questions
How can procurement advance the collaboration with suppliers on circular thinking in an effective way? How can procurement ensure that the suppliers are willing and able to share their knowledge?
For procurement to be successful in these innovation-oriented supply partnerships I believe that it requires new models for relationship building and collaboration. It also requires procurement to integrate across the whole organization.
There is a great opportunity for procurement to take on the leading position within a company, transforming them from linear economies to circular ones; but for this to work demands that procurement professionals are able to think in “circles”.
The trend toward greater use of lightweight aluminum in automotive applications is accelerating and entering new markets at a faster rate than ever before in history.
In this one-on-one interview, Managing Director for Novelis China, James Liu, shares the impact of Novelis’ recent market expansion to China – what it means for the Chinese market, for Novelis and for the world.