Chinese aluminium giants have their eyes set on global automotive and aerospace sectors

Chinese aluminium giants are making fast forays into global aerospace and automotive markets. Industry experts believe their entry would not only heat up competition but also spark fresh buying spree for metal companies based in the US and Europe. The Chinese aluminium makers are aiming at bigger pies of the market dominated by the Alcoas and Constelliums in order to expand their reach and enrich their technical know-how in the process.

The chief executive of Novelis Inc, Steve Fisher said last week, he expected competition from the Chinese producers to intensify over the next five to 10 years in the high-value-added aerospace and engineering segments- which so far have been dominated by the European and US manufacturers.

"Certainly (Chinese aluminium makers) will be able to produce high quality products as well," Fisher said at the Commodity Summit in Seoul last week.

According to industry reports, Zhongwang USA LLC will buy high precision aluminium product maker Aleris Corp for $2.3 billion in the biggest ever deal so far by a Chinese company into the mighty US aluminium industry. The deal is subject to approval from the US regulators.

"If Aleris is acquired by the Chinese, it would be logical to think that there would be more competition within the higher value-added sectors such as aerospace and automotive. That's where the better margins are," observed analyst Robin Bhar of Societe Generale in London. "(But) Aleris is quite a significant supplier to the U.S. military, so it's by no means a done deal," he said.

There are also speculations of Constellium being eyed by potential buyers. To this analyst Charlie Durant of consultancy CRU in London reacted by saying, "There will be more announcements of purchases by Chinese companies of foreign firms in the next 18 months and continued consolidation globally. It will enable Chinese producers to better utilize their equipment in China, as well as obviously getting the access to markets around the world."

China Zhongwang is aggressively pursuing a downstream strategy. The company with a ‘healthy balance sheet and an appetite to expand downstream’ might be a good target for bidders such as China's Hongqaio Group and Shandong Nanshan Aluminium, market watchers suggest.

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