The Effects of Globalization on the Aluminum Extrusion Industry

ET ‘04 May 18-21, 2004 Orlando, Florida B. Ruettimann, Alcan Automotive


The Effects of Globalization on the Aluminum Extrusion Industry

Bruno G. Rüttimann, Alcan Singen GmbH

8th International Aluminum Extrusion Technology Seminar ET‘04 May 18-21, 2004 Orlando, Florida

Part 2: Implications


Mergers & Acquisitions


Trade Deregulation


Increasing Competition


Price Pressure


Flow of Information


Interlinked Markets


World-wide Strategies


Reduced Growth Rates


Overcapacity


Un-employment


Summary Part 1: Theoretical Considerations The Dimension of Globalization The Emerging New Paradigm The 10 Extrusion Postulates of Globalization Restrictions and Strategic Options for Extruders

CONTENTPart 2 (General Session): Implications

.


Deriving Typologies of GlobalizationBasic classification of business types

MarketstructureMarket

structureProductcharacteristicsProductcharacteristics

OperatingconfigurationOperatingconfiguration

BusinessclassificationBusinessclassification

Type of globalizationType of globalization








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polypolistic oligopolisticMARKET STRUCTURE

Commodity

Speciality

Standards

Convenience


Deriving Typologies of Globalization2 main types


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Type IIType II






Type IType I

Type 1: material G. (physical)

Type 2: immaterial G. (financial)


Deriving Typologies of Globalization2 main types







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Type IbType Ib

Type IaType Ia

Type IIType IIType IcType Ic

Type 1: material G. (physical)

Type 2: immaterial G. (financial)


Bauxit mining,

alumina production

,

Primary smelter, casting,

Rolling, extruding,

die casting, forging ,...

, ,

,

Components, ,

finished productsU

sage

Recycling

Usa

ge

Scrap,waste

Remelters, foundries

, Scrap,waste

Deriving Typologies of GlobalizationAluminium industry structure and globalization type


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Type IbType Ib

Type IaType Ia

Type IIType II


Bauxit mining,

alumina production

,

Primary smelter, casting,

Rolling, extruding,


, ,

,

Components, ,

finished productsU

sage

Recycling

Usa

ge

Scrap,waste

Remelters, foundries

, Scrap,waste

Deriving Typologies of GlobalizationAluminium industry structure and globalization type


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Type IbType Ib

Type IaType Ia

Type IIType II Rolling, extruding,


, ,

,

Rolling, extruding,


, ,

,

Rolling, extruding,


, ,

,

Rolling, extruding,


, ,

,

Rolling, extruding,


, ,

,

Rolling, extruding,


, ,

,

Rolling, extruding,


, ,

,

Rolling, extruding,


, ,

,

Rolling, extruding,


, ,

,


... a Big Change is OccurringEuropean price evolution of rolled and extruded products

0

1000

2000

3000

4000

5000

1980 1984 1988 1992 1996 2000

LME

DM

/Ton

5

6

7

8

9

10

DM

/kg

LMERollingExtrusion

Opening of Eastern EU

?


The Dimension of GlobalizationGlobal view of extrusion production in 2001

L. America675

N. America1770 West Europe

2400

E. EU300

CIS650

Japan1020

China1300

Asia1197Africa

450


The Dimension of GlobalizationGlobal view of extrusion flows in 2001

L. America675

N. America1770 West Europe

2400

E. EU300

CIS650

Japan1020

China1300

Asia1197Africa

450

27

13

93

14

171

2443

1615138

5439 55 66

23


The Dimension of GlobalizationGeographical distribution of selected group plants

Group TOTAL N-AmericaL-AmericaW-EuropeE-Europe CIS China Japan Asia Africa

Alcan 5 4 1Alcoa 45 17 11 14 1 1 1Bonnell 7 7Capral 6 6Corus 5 4 1Hydro 40 10 2 23 1 1 3Indalex 15 15Kaiser 7 7Pechiney 9 9Sapa 14 2 11 1YKK 6 1 4 1

Source DIAC


The Emerging New ParadigmDynamics of paradigm change in fragmented markets

Strategy to growglobally for K

+

GlobalizationType 2

Take overin Z

+

Propensity for globalization(Type 1c)

+

Strategy to growglobally for Z

+

GlobalizationType 1c

Export (Z K)+

Domesticdemand K

+

-

Domesticdemand Z

-

-

+

-

Shake outin K

+

+

+

+

-

-


The Emerging New ParadigmDynamics of paradigm change in fragmented markets


+

GlobalizationType 2

Take overin Z

+


+


+


Export (Z K)+

Domesticdemand K

+

- -

Domesticdemand Z

-

+

-

Shake outin K

+

+

+

+

-

-


The 10 Extrusion Postulates of GlobalizationPostulate 1Type 2 globalization will not change the fragmented market structure and its related market rationale.


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Type IbType Ib

Type IaType Ia

Type IIType II

MarketstructureMarketstructure

ProductcharacteristicsProductcharacteristics


BusinesstypeBusinesstype



The 10 Extrusion Postulates of GlobalizationPostulate 2Family-owned independent SME will continue to exist in concomitance of group integrated extruders.

25.03.2004

1900 20001950

20overall aluminium consumption 25 Mt

10

5

Independent 56%

Integrated 44%

INDEPENDENTS VS INTEGRATEDS WORLD ALU USERELATIVE SHARE

Mt


The 10 Extrusion Postulates of GlobalizationPostulate 3The new opportunity of internet bidding can create the preconditions for a new world market price.

Saturation in existing

end markets

Saturation in existing

end markets

World-wide communication

network

World-wide communication

network

Searching for optimization potential

Searching for optimization potential

Searching for geographical expansion

Searching for geographical expansion

Searching for diversification opportunities

Searching for diversification opportunities

M&AM&A

Opening of a global market

with new competitive environment

and new world market

price

Opening of a global market

with new competitive environment

and new world market

price

+PricePrice//margin pressure margin pressure PricePrice//margin pressure margin pressure

Change of competitive system

Change of competitive system

Shake-outShake-out

Concentration processConcentration processConcentration process


The 10 Extrusion Postulates of GlobalizationPostulate 4Price difference in different economies will generate a propensity for type 1c globalization.

Volume

Price

FDI

CH

B GA

EpA

pK

Price spanof similareconomies

Demand ZOffer Z

ZpZ

Transactioncost cZK

Globalizationpropensity(pK-pZ-cZK)

0

10 0

20 0

30 0

40 0

50 0

V ZK

G

lobal

izat

ion v

olu

me

(kto

n)

0 0 ,5 1 1 ,5 2P ro pens ity (E u ro /kg)

00 ,10 ,20 ,30 ,40 ,50 ,60 ,70 ,80 ,91

Ela

stic

ity

P ro p e ns ity fun c tio n E la s tic ity fo r g lo ba liz a tio n

0p

L K

ZKZK

ZKpp

s

KZK eLV 0

ZK

ZK

ZK

ZK

ZK

pp

VV


The 10 Extrusion Postulates of GlobalizationPostulate 5A new eclectic market type is potentially arising with a still fragmented market structure but type 1c world price characteristics.


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TypeType Ib Ib

TypeType Ia Ia

Type IIType IIType Type IcIc


The 10 Extrusion Postulates of GlobalizationPostulate 6This type 1c is unstable, and has only transient character because of growing overseas demand and shrinking propensity.


+

GlobalizationType 2

Take overin Z

+


+


+


Export (Z K)+

Domesticdemand K

+

- -

Domesticdemand Z

-

+

-

Shake outin K

+

+

+

+

-

-


The 10 Extrusion Postulates of GlobalizationPostulate 7Price level in high-price economies will drop temporarily as long as price differences will exist.

Volume

Price Demand K Offer K

pK

VK

initialequilibrium

Offer Z

pZ

VZ

price drop ofdomestic supplies

volumeincrease

pdom

VK‘

Offer K‘

finalequilibrium

shake out

remaining domesticsupplies Vdom

importsupplies VZK

0

1000

2000

3000

4000

5000

1980 1984 1988 1992 1996 2000

LME

DM

/Ton

5

6

7

8

9

10

DM

/kg

LME Rolling Extrusion

Opening of Eastern EU


The 10 Extrusion Postulates of GlobalizationPostulate 8Shake-out of less competitive extruders is foreseeable.

Volume


pK

VK

initialequilibrium

Offer Z

pZ

VZ


volumeincrease

pdom

VK‘

Offer K‘

finalequilibrium

shake out


importsupplies VZK


The 10 Extrusion Postulates of GlobalizationPostulate 9Demand will increase due to lower price level and open the access to new applications.

Volume


pK

VK

initialequilibrium

Offer Z

pZ

VZ


volumeincrease

pdom

VK‘

Offer K‘

finalequilibrium

shake out


importsupplies VZK


How to RespondRestrictions and strategic options for extruders

CO

MPA

NY

TYP

E G

roup

In

tegr

ated

SME

Inde

pend

ent

BASIC STRATEGY ORIENTATION Defend Export Type 2

Concentrateon service

(cost remains an issue)

Idem

Technology orsolution driven

Idem, but exploitspecialization

within the network

X

Take over / JVin economy Z


The 10 Extrusion Postulates of GlobalizationPostulate 10Extruders situated in high-price economies will have to further concentrate their offer on service or technology based performance.

The Effects of Globalization on the Aluminum Extrusion Industry

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