To help the overall industry and individual companies address the challenges, the report presents a comprehensive CEO agenda with 10 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.
Thomas Bradtke, a BCG partner and co-author of the report, said, "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."
Bradtke said that 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."
Kai Gruner, another report co-author and senior partner at BCG, said that global aluminum consumption has been driven almost entirely by China since 2000. "We expect this trend to continue," he said, adding that China's capacity for producing primary aluminum has grown dramatically, while 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," Gruner explained.
According to the report, developments in the value chain's upstream and downstream segments are adding to the challenges facing Western companies. 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 semi-fabricated and fabricated aluminum products.
Co-author Knut Olav Rød commented, "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."
He said that a more aggressive approach must be implemented on an industry and a company level. "The scale of the problem is too daunting to be resolved by individual companies acting independently," he said.
Where over capcity outside of China is concerned, 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 http://www.bcgperspectives.com