Aluminum Scrap Markets
13 May 2025
Novelis builds for tomorrow, pays for it today
Written by Nicholas Bell
In a quarter where aluminum prices rallied and shipments nudged upward, Novelis found itself caught between expansion plans and unfortunate timing.
Quarterly revenue grew by 13% to $4.6 billion thanks to higher aluminum prices, and net income surged 77% to $294 million.
The headline numbers largely from below-the-line items: a reversal of last year’s $174 million impairment charge and a one-time $30 million insurance payout, without which, net income declined to $76 million.
Shipment growth misses the core
Third-party shipments were up 1% year-over-year to nearly 957,000 metric tons (t). But regionally, it was uneven.
North America dropped by 16,000t to 375,000t from the prior year, while deliveries to European customers grew by 22,000t to 266,000t over the same period, more than offsetting a slump in North American sales. Similarly, Asia declined by 11,000t to 154,000t, counterbalanced by a 11,000t increase in sales to South America ending the quarter at 162,000t.
Metal lag bites back
Novelis booked a $55 million loss amid a rising LME, likely owing to the timing mismatch between buying metal and recognizing revenue. The company’s mix of fixed-forward and LME-indexed contracts, common in automotive and beverage can agreements, meant it was selling rolled product based on older pricing while its scrap and prime inputs were rising. That hit hardest in North America, where an adjusted EBITDA dropped 15% despite a 4% drop in shipments. This is a clear sign, in North America at least, that margins, not volume, are under pressure.
High content, low payoff
Despite Novelis’ average recycled content of 63%, the company saw an 8% drop in EBITDA per tonne. Meanwhile, Constellium, who utilizes an average of 73% recycled content didn’t suffer the same fate in regard to the packaging and automotive rolled products segment – which rose by 25%.
The squeeze on scrap margins in the used beverage can (UBC) and automotive scrap market couldn’t come at a worse time for Novelis. While UBC scrap is likely indexed as a percentage of the Midwest transaction price and LME-sensitive, the buying spreads have tightened significantly toward questionably untenable levels in the last half a year amid stiff competition and another beverage can sheet mill coming online. Meanwhile, their accounting for automotive scrap likely isn’t pegged to something overtly impacted by the LME.
Big projects, bad timing
All this hits just as Novelis leans into growth – narrowing its focus on auto and can sheet as scrap costs climb and margins compress. The 600,000t/yr mill in beverage can/auto body sheet Alabama will come online in a little more than a year after the company pushed out its start date, and a new 240,000t/yr automotive scrap recycling facility in Kentucky has seen persistent delays.
While the Kentucky facility is intended to reduce reliance on volatile scrap markets with addition to its closed-loop recycling, the facility has become a bit of a financial drain, while delays in the beverage can sheet mill may have cost market share and stockpiling ability.
Expansion in a tight scrap markets hurt
Despite the positive sustainability press, it’s becoming harder to guarantee margin by recycled content alone, especially if scrap costs are rising faster than contract pricing and new assets burn cash before delivering volumes. The company’s long-term positioning is tough to achieve, but the near-term challenge is turning a green reputation into black ink.
