The world's aluminum companies are merging or forming alliances and China Steel Aluminum Corp (??鋁) -- a subsidiary of China Steel Corp -- is going with that trend. Alcoa of the US is preparing to buy a 30 to 50 percent stake in the company.
Wang Chung-yu (
"Alcoa has been very active in Asia. Whenever it forms partnerships with other companies, it usually tries to acquire a majority stake. But the company [CS Aluminum] is like our child and we are a little reluctant to sell it," said Wang.
The chairman refused to reveal more details, saying only said that the two companies are still negotiating.
Alcoa has recently announced its plan to acquire an 83 percent stake in South Korea's largest flat-rolled aluminum producer, Koralu, from the Hyundai Group.
According to Tsao Chien-ming(
There is still disagreement now, over the number of shares to be purchased. Alcoa wants to purchase a majority stake in order to wield greater influence over the company's management, while China Steel wants to keep.
Tsao said that the deal is very likely to go ahead, but it is not very probable that China Steel would sell more than a 35 percent share of CS Aluminum, noting that any important issues have to be passed by two thirds of the company's board members.
According to Tsao, the major force driving Aloca's partnership bid is that it wants CS Aluminum's help to further develop its market in China.
However, Alcoa has something to offer as well. It can give CS Aluminum advanced technology for making aluminum material for aviation applications and provide the Taiwan company with the global reach it now lacks.
"If the deal is consummated, CS Aluminum and Aloca will jointly explore the China market. With Taiwan's future entry into the WTO, and the domestic competition will become more fierce. CS Aluminum has to go into China," said Tsao.
CS Aluminum is the largest aluminum manufacturer in Taiwan, with a 30 to 35 percent market share. The company produces 100,000 tons of aluminum products per year.
It has just spent over NT$5 billion to expand its production facility. With the completion of the expansion by the end of this year, the company's annual production is expected to reach 120,000 tons.
The CS Aluminum - Alcoa deal is the latest saga in the continuing consolidation efforts that are forming global giants in the aluminum industry.
In August, Canada's Alcan, the second largest aluminum maker in the world, announced plans to merge with Pechiney of France and Switzerland's Algroup, a move intended to oust Alcoa from its leading position. The new company is to be named APA.
Alcoa hit back by announcing plans to acquire Reynolds Metals, its smaller American competitor.
If the two deals go head, Alcoa's share of the North American market will go up from 26 percent to 35 percent, while APA would have 20 percent.
More mergers and deals are expected, though on a smaller scale.
"It is a global trend for aluminum manufacturers to merge together and the consolidation will make it difficult for a new competitor to enter the industry," said Chang Hsueh-jen (
The mergers among aluminum makers are mainly aimed at yielding economies of scale to reduce production costs and increase productivity. The global demand for new metal, including aluminum, appears to be growing steadily in the long term, but the price of aluminum has been falling.
"Though aluminum has environmental advantage, it is relatively more expensive to produce than both steel and plastics; therefore, it is vulnerable to competition from steel and plastics," said Chang.
As the competition becomes fiercer, it is essential for manufacturers to cut the production costs. And the mergers or alliances are expected to permit great efficiencies and cost reduction.
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