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Developing Global Aluminum Business With the Long-term Perspective of a General Trading Firm

October 2013

Focus on aluminum, one of the most profitable recycled materials

Lightweight, rust-resistant and with high thermal conductivity, aluminum is among the most widely used metals, notably for beverage containers such as beer cans. Featuring the above and other useful properties, the metal also serves a broad range of industrial applications, including its recent adoption as a lightweight alternative material for car bodies. In addition, this serviceable metal is highly recyclable, which explains its generally high recycling rate in industrialized regions. In emerging economies, demand for aluminum has recently been growing, and collecting aluminum scrap, a valuable industrial resource, is becoming a significant source of income, driving up the recovery rate for one of "the most profitable recycled materials." Aiming to become a leading player in the global market, Sumitomo Corporation has developed its aluminum business with a focus on beverage cans, which constitute a large share of the demand for aluminum. The key initiative to achieving this aim is the company's partnership with Tri-Arrows Aluminum Inc. ("TAA"), based in the U.S.

In general, demand for material to make aluminum cans increases in tandem with a nation's GDP growth. The theory behind this is that economic development brings about industrial advancement and material affluence, allowing people who previously had to buy beverages in heavy bottles or bring them from home in bulky containers to conveniently purchase canned drinks supplied by supermarkets and other mass retailers. Industrialized societies, including Japan, have passed through a similar development phase and have already witnessed the demand for aluminum cans peak. Such countries are now expecting to see the market beginning to shrink, along with their declining populations. Despite this grim picture, the global market is anticipated to expand at an average of 2 to 3% per annum in years to come, largely due to rising demand in emerging economies. Identifying this potential growth, Sumitomo Corporation began to explore an opportunity to effectively take on the global aluminum can material market. As a crucial initial step to this project, we moved to acquire a leading aluminum sheet producer based in the U.S., the world's largest aluminum beverage can market.

Bales of aluminum beverage cans collected for recycling and turned into scrap

Acquiring the world's top aluminum rolling mill

The target company was ARCO Aluminum Inc. ("ARCO"; currently Tri-Arrows Aluminum Inc.), the world's top manufacturer. Headquartered in Kentucky, ARCO supplied rolled aluminum sheet to beverage can makers. At the time, the company was a wholly owned subsidiary of BP p.l.c. and its stable earnings had contributed to the oil giant's prosperity over previous years. The massive oil spill of 2010 triggered by the explosion of a BP drilling rig in the Gulf of Mexico, however, forced the company to sell out its blue-chip arm in order to fund part of the enormous compensation costs. Viewing this major development as a highly attractive opportunity, we formed a consortium with Sumitomo Light Metal Industries, Ltd. ("SLM"; currently UACJ Corporation), Furukawa-Sky Aluminum Corp. ("Furukawa-Sky"; currently UACJ Corporation) and the ITOCHU Group in order to acquire the aluminum firm.

The consortium and BP negotiated the transfer of ARCO's shares and concluded an agreement in April 2011. Upon signing the contract, a BP representative shared with us his feelings of satisfaction about selecting the Japanese corporate team as the best option for ARCO and its employees, demonstrating BP's confidence that the new team would work assuredly to share goals and strategies with the firm's managers. His comment sounded like a reward for the long and hard efforts we had made to forge a relationship of trust with ARCO by organizing meetings among executives of ARCO, SLM and Furukawa-Sky to discuss strategies and share goals. We believe that this sense of trust, fostered over the course of time through repeated communication, was key to helping ARCO and its parent company decide to make a new start under Japanese ownership.

Aluminum ingot cast into bars about 70 centimeters in height. To make them, the recovered scrap is melted at 600℃ and put under tremendous pressure.

Inspiring employees to take up a global business challenge

TAA, as ARCO was renamed following the acquisition, supplies beverage can makers with rolled aluminum sheet processed by Logan Aluminum Inc., in which TAA holds the stake of an approximately one third of the capacity. Logan Aluminum operates the world's leading aluminum rolling mill, which produces around half of all beverage cans distributed in the U.S.

Our future plans for TAA center on enhancing global business development by taking advantage of its large production capacity to effectively respond to the likely growing demand in emerging markets. We hope that this challenging vision will inspire the employees of TAA, who previously worked under BP's domestic-market-oriented management, to gain a broader perspective and fulfill their potential to an even greater extent.

Ingot heated and pressed into aluminum sheet roll with a full length of more than 400 meters

Contributing to the development of Japan's aluminum industry

The acquisition of ARCO and establishment of TAA as described above has spurred a significant restructuring of Japan's aluminum sector landscape. Specifically, two members of the acquisition consortium, Furukawa-Sky and SLM, the national top- and second-ranking aluminum sheet manufacturers, respectively, were prompted to integrate to establish a new company that, with TAA added to the group, is the world's third largest aluminum supplier.

The new company, UACJ Corporation, aims to become a leading player in the global market. This will likely accelerate the globalization of Japan's aluminum industry, which will in turn provide trading companies with new opportunities for expanding business surrounding the useful material. Such opportunities include an even a broader range of uses of the metal, in everything from vehicle bodies to home-use air conditioners and aircraft fuselages. Sumitomo Corporation will endeavor to capture these opportunities in order to achieve additional growth, supporting the global development of Japan's aluminum industry.

TAA employees working at the mill located on the headquarters site in Kentucky, U.S.

Related Tag

  • Metal Products Business Unit
  • U.S.A.
  • Metal Products

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