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8
Breaking the Barriers:
Unlocking New Possibilities for Aluminum
Notes for a presentation by
Brian W. Sturgell President and Chief Executive Officer
Novelis Inc.
CRU 11th World Aluminum Conference Montreal
June 13, 2006
Approx time: 27 min. (including video insert)
Breaking the Barriers: Unlocking New Possibilities for Aluminum
Breaking the Barriers: Unlocking New Possibilities for Aluminum
Brian W. SturgellPresident and Chief Executive OfficerNovelis Inc.CRU 11th World Aluminium ConferenceJune 13, 2006
Good morning ladies and gentlemen.
My name is Brian Sturgell and I’m CEO of Novelis, the world’s largest aluminum
rolling company, supplying millions of tons of aluminum sheet and foil products to
hundreds of manufacturing customers through the talent of thousands of skilled
employees working in dozens of facilities around the world.
Safe Harbor StatementSafe Harbor StatementStatements made in this presentation which describe Novelis’ intentions, expectations or predictions may be forward-looking statements within the meaning of securities laws. Novelis cautions that, by their nature, forward-looking statements involve risk and uncertainty and that Novelis’ actual results could differ materially from those expressed or implied in such statements. Important factors which could cause such differences include, but are not limited to: competitive factors, ability to consistently meet quality standards of Novelis FusionTM
technology in a commercial environment, ability to achieve the benefits described for multi-alloy sheet, ability to achieve market penetration in potential industries, uncertainties of potential litigation, achieving necessary patents on the Novelis Fusion technology, the Company’s ability to meet Novelis Fusion sales forecasts, the Company’s economic ability to install Novelis Fusion casting centers worldwide, the price of aluminum; global supply and demand conditions for Novelis Fusion products; demand and pricing within the principal markets for the Novelis Fusion products; changes in government regulations, particularly those affecting environmental, health or safety compliance associated with the Novelis Fusion; economic developments; relationships with (and financial or operating conditions of) customers and suppliers; competition from other aluminum rolled products producers as well as from substitute materials such as steel, glass, plastic and composite materials; the level of our indebtedness and ability to generate cash; and other factors relating to the Company's ongoing operations. The financial information provided in this news release was prepared by management and has not been audited. Reference should be made to Novelis' registration statement on Form S-4 filed with the Securities and Exchange Commission for a discussion of other major risk factors.
This is our Safe Harbor statement. Our attorneys will be pleased to know that I
have officially cautioned you that results may vary from any forward-looking
statements in my comments today regarding Novelis.
Niels Bohr Niels Bohr
But rather than talk today about Novelis, I’d like to briefly talk about Niels Bohr,
who, in 1911, was a brilliant, young, newly minted doctoral graduate of
Copenhagen University.
The story goes that Bohr was actively discouraged by his professors when he
expressed an interest in devoting his life to the study of physics. “Newtonian
mechanics and classical physics are inarguable,” they told him. “There are simply
no major discoveries left to be made in physics….especially now that we’re
closing in on the proofs for ‘interstellar ether.’”
(PAUSE)
They advised him to invest his substantial intellect in some developing science,
like chemistry, where there might yet be a chance to make a real impact.
“Perhaps,” they told him, “you could get an element named after you.”
Well, you may know the rest of the story. Niels Bohr ignored this counsel and
went on not only to study physics, but to revolutionize all of physical science. He
did the work that would give birth to quantum mechanics which not only
supplanted classical, Newtonian theory, but became the underlying mathematical
framework of computational chemistry, particle physics, nuclear physics, and
other fields that have brought so many advances to the contemporary era.
Niels Bohr Niels Bohr
I should also mention here that there actually is an element on the periodic table
named for Niels Bohr. Bohrium is Atomic Number 107, if you’d care to look it up.
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Maturing MarketsMaturing Markets
Flat Rolled Products Demand in North America
kt
1994-2005 CAGR (N-A):
0.9%
CAGR 12.5%
9.1%
3.2%1.6%
1.6%1.6%
-0.1%
So, why am I talking about Niels Bohr? Here’s why: I love his story because, in
some faint echo, we’ve been living it lately. This tale illustrates a timeless axiom
in the history of science, be it manifest in pure research or industrial technology:
There is only innovation or stagnation; there is little in between.
No one who has been following our industry can deny that the danger signs of
stagnation are apparent, and that our industry’s life cycle may be close to its
peak.
We estimate that total world aluminum demand grew by 4.3% in 2005, to
approximately 44 million metric tons. The big driver, of course, continues to be
China, where demand growth remains in double digits, although declining. In the
Western World, however, demand for aluminum increased only by about 2% last
year, below its long-term rate of 2.5% for the past decade. Demand for rolled
products, our segment of this industry, has been growing steadily, but slowly. In
North America, for example, the compound annual growth rate for rolled products
in the past ten years has been under 1%.
A Need for InnovationA Need for Innovation
What is needed in our industry is a quantum leap, some explosion of innovation
that turns conventional wisdom on its head and makes fools of those who claim
that all the meaningful discoveries already have been made. Such a
development could exponentially expand the applications of aluminum – and help
the manufacturing world fully realize and exploit all its obvious advantages over
steel and other competing products. Advantages like light weighting, formability,
recyclability… you know that list.
Innovation TimelineInnovation Timeline
1900 1950 20001850
We at Novelis are true believers in the future of aluminum and the ability of this
remarkable metal to leap into scores of applications that are not yet even
imagined due to the currently understood constraints on the industrial process.
Innovation TimelineInnovation Timeline
Charles Martin Hall/
Paul Heroult, electrolytic
process1886
1900 1950 20001850
But such constraints did not dissuade Charles Martin Hall and Paul Heroult in
1886 from inventing the electrolytic process that made the manufacture of
aluminum economically feasible for the first time.
Innovation TimelineInnovation Timeline
Charles Martin Hall/
Paul Heroult, electrolytic
process1886
Direct Chill
Casting1938
1900 1950 20001850
Such constraints could not retard the advance of DC Casting in 1938 which
allowed aluminum to make its first serious incursion into specialized steel
applications.
And such constraints did not hold back the Continuous Casting technologies of
the 1950s which brought aluminum into full and direct competition with steel
sheet in many applications.
Innovation TimelineInnovation Timeline
Charles Martin Hall/
Paul Heroult, electrolytic
process1886
Direct Chill
Casting1938
Continuous Casting1950s
Novelis Fusion2006
1900 1950 20001850
This morning, Novelis announced a technological advance that we believe will be
added to the litany of game-changing innovations I just recited. We call it Novelis
Fusion technology, and we’re very excited about it. Let me tell you why.
Alloys Provide Desired FeaturesAlloys Provide Desired Features
Historically, products in our industry have been manufactured with a view to
optimizing specific characteristics requested by our customers — strength,
formability, appearance, etcetera. We assign such characteristics to the rolled
aluminum sheet by carefully blending aluminum with alloying elements whose
properties correspond to the desired features. For example, adding copper,
manganese or iron improves hot strength. Tensile strength is increased through
the addition of magnesium, and so on.
The limits here – the Newtonian physics, if you will – in our state-of-the-art
industrial processes, lie in this inescapable fact: Some of the attributes most
desired by our customers work against each other at the metallurgical level.
The Value of Mag AlloysThe Value of Mag Alloys
Take magnesium, for instance. We love magnesium alloys because many of our
customers love its strength. Magnesium atoms don’t just adhere to aluminum,
they actually occupy the spaces within the aluminum lattice that forms the bulk of
the rolled sheet, greatly enhancing the strength of the finished product. “High-
mag” alloys are great for applications that demand toughness and fatigue
strength. Anything that vibrates, oscillates or occasionally takes a jolt is a great
candidate for high-mag alloys. Think cars, trucks, planes and trains.
So, if a little magnesium is good, a lot of magnesium should be great, right? Well,
wrong.
When combined with aluminum in an alloy, magnesium has the bothersome
propensity to oxidize and cause corrosion under certain conditions, leading to a
dull appearance. Magnesium is a highly reactive metal, and manufacturers of
pick-up trucks and bullet trains are understandably concerned about the
durability and appearance of their products.
Conventional Cladding: An Inadequate SolutionConventional Cladding: An Inadequate Solution
The standard solution to this ‘antagonism of attributes’ is to combine the high-
strength, high-mag core with some low-corrosion “clad” layer before feeding the
ingot into the rolling mill. This “cladding” process should, in theory, suppress the
tendencies of the core alloy to oxidize.
These metal “sandwiches” are very costly to make and are notoriously difficult to
work with in a rolling mill. Not only do they take a lot of labor and hot mill time,
but they also don’t provide an adequate solution to the problem.
These layers sometimes slip apart during the stressful rolling process. But even
when they stay together, the bond between the two is interrupted by oxidation of
the interface of the core and clad.
It’s a conundrum that has left those of us in the aluminum rolling industry
scratching our heads …. for more than 60 years.
The result? We have had to ask our customers and their product designers to
make trade-offs. You want to make the hull of a boat that’s very strong? Maybe
even bullet proof? Terrific. That means high-mag alloy, around 4 percent. You
want to put that boat in the ocean where it will be subjected to a highly corrosive
environment? No problem. That means a low-mag alloy, around 2 percent.
You want those properties in the same sheet of metal? Sorry. You have just
requested a product that defies laws of physics. You’re out of luck. You must
choose between high strength and low corrosion. You must compromise.
But what if, like Niels Bohr, we refuse to accept the limitations of our metal and a
manufacturing process developed over the past 100 years?
The Promise of Novelis Fusion TechnologyThe Promise of Novelis Fusion Technology
Now for the quantum leap.
(Display car door sample)
This portion of an automobile door boasts extremely high resistance to corrosion,
stress and cracking. It also is very strong and very formable. At its core is a high,
high-mag alloy – 5.7 percent. Nobody offers an alloy that rich in magnesium
because of the propensity for oxidation.
But this product also is encased by a corrosion resistant layer, measuring just a
few microns, that not only forms a perfect, slip-free bond with the core ingot
during the rolling process, but also acts as a barrier to the diffusion of the
magnesium to the surface of the metal sheet. It also has the added benefit of
increasing life of plant tools that no longer need suffer the wear and tear caused
by the magnesium that diffuses to the surface.
Now, I’ve been going on about magnesium, but the same phenomenon of
conflicting attributes plagues other alloys in our industry. Magnesium just
happens to be the most notorious culprit when it comes to such metallurgical
misbehavior. If we can lick these problems with magnesium, then copper, zinc,
silicon and the rest will be a piece of cake.
This is…This is…
The trade-off illustrated here with magnesium alloys is but one example of the
challenges we face in designing a product to specification. Properties that are
desirable at the surface often are not those we would prefer in the core. If we can
tailor our alloy combinations to the exact needs of both the surface and the core,
we will have changed the game of aluminum manufacturing.
Novelis Fusion alloys do just that.
To view the Novelis FusionTM
video, please visit www.novelis.com/fusion
(Roll video – 4 minutes)
Impact of Novelis Fusion TechnologyImpact of Novelis Fusion Technology
Supplants cladding
2
I love the animation in that video that shows the two molten metals being cast
simultaneously. Like pouring beer – from an aluminum can, of course – into a tall
glass. Oh, if it were only that easy. It actually is a complex process that Novelis
now has developed.
The impact of Novelis Fusion technology is immediate and many fold. First it
supplants the costly and awkward conventional cladding process. Anything
manufacturers now are making with conventionally clad sheet can be made
better with the Novelis Fusion process.
Impact of Novelis Fusion TechnologyImpact of Novelis Fusion Technology
Makes possible “impossible”combinations
Second, there are many alloys that will not submit easily to being clad through
conventional means, most commonly in cases where there is high magnesium
content in either the clad layer or the inner core material. Novelis Fusion
technology makes these and other formerly “impossible” combinations
commercially possible for the first time.
3
Impact of Novelis Fusion TechnologyImpact of Novelis Fusion Technology
• Supplants cladding• Makes possible “impossible” combinations• Supplants cladding• Makes possible “impossible” combinations• New product possibilities for designers
New product possibilities for designers
And third, and in my mind most importantly for the industry, it opens up brand
new areas for designers of our customers products. It gives product developers
uncharted worlds to explore. We can now envision aluminum rolled sheet
featuring attributes that never were requested because they were known to be
almost impossible to produce.
Well, they’re possible now. That’s why we have chosen for our marketing tag
line: “Infinite possibilities.”
4
ArchitectureArchitecture
How does this play out in industrial applications? Let’s start with architecture.
When we showed a sample of Novelis Fusion material to a company that
supplies the architectural market, they got very excited. Architects love aluminum
panels that are strong, dent resistant and can be anodized to help create
different colors and finishes. However – here we are in the world of trade-offs
again – architectural panels that have good aesthetics happen to be, due to
necessary metallurgical compromises, not as strong as architects would like
them to be.
But once the architecture experts realized they could have both looks and
strength, they saw the applications immediately.
We have architecture customers already in trials with a Novelis Fusion product
and they are thrilled with the improved formability and better surface
characteristics that they’re seeing. The product gives a cleaner, crisper bend,
without the “orange peel” effect that conventional materials exhibit.
5
Strength vs. FormabilityStrength vs. Formability500
400
300
200
100
0.00 2.00 4.00 6.00 8.00 10.00
Stre
ngth
(MPa
)
High Mg Alloy(similar to 5456)
Formability (% Elongation)
Our customers are also pleased with the strength that a Novelis Fusion product
can provide.
Take a look at these Stress/Strain curves. Here we see that strength of a high-
magnesium alloy is very strong – over 400 Mega Pascals on the vertical axis. But
its formability, this horizontal axis, goes only to 6% elongation.
Strength vs. FormabilityStrength vs. Formability500
400
300
200
100
0.00 2.00 4.00 6.00 8.00 10.00
5005
Stre
ngth
(MPa
)
High Mg Alloy(similar to 5456)
Formability (% Elongation)
6
When we look at a lower magnesium alloy, in this case 5005, we get formability
approaching 8%, but the strength falls far short of the ideal.
Strength vs. FormabilityStrength vs. Formability500
400
300
200
100
0.00 2.00 4.00 6.00 8.00 10.00
5005
Stre
ngth
(MPa
) Fusion (5005/5456/5005)
High Mg Alloy(similar to 5456)
Formability (% Elongation)
Now let’s look at the Novelis Fusion solution – a 5456 high-mag alloy core with a
highly formable 5005 external layer. Strength and formability in one product.
That’s what we mean by the end of trade offs. You can have it all, for the first
time, in industrial quantities.
Household AppliancesHousehold Appliances
7
Consider for a moment dishwashers, ranges and refrigerators.
The current rage in household appliances is the stainless steel finish.
Conventional uni-alloy aluminum solutions are not able to compete with stainless
steel because in order to meet the strength requirements with an alloy that
provides the right surface finish, the aluminum would have to be a heavy gauge,
making it difficult to form and costly to use.
With Novelis Fusion multi-alloys, however, we can:
• match the strength of steel,
• provide all the necessary formability,
• deliver a brushed surface finish much like stainless,
• and we can do it at a total product cost that is competitive.
Furthermore, we can start developing the next “look” -- the next stainless steel, if
you will -- for the appliance industry. We are currently working with a European
producer of high-end appliances who has asked us to do just that. Specialty
finishes may include brushed, patina, bright and micro-matte. In addition, we may
be able to downsize the sheet, say by 10%, which would deliver a significant
savings.
Result: it opens up a whole new range of design options for our customers.
8
AutomotiveAutomotive
Finally, let me show you an example in the auto industry.
One persistent challenge for automotive body panels has been the lack of a true
“flat hem” –- the hem is where the outer panel is wrapped around the edges of
the inner panel on a hood or a fender, for example. Automakers like flat hems
because it allows the appearance of a nice tight fit, or “transition”, between body
panels. Here, high formability is essential, as the metal must bend at a severe
angle without surface cracking.
It’s very difficult to do with current aluminum technology, because the alloy
needed to provide the necessary strength in the panel, limits its formability.
Trade-offs again. But Novelis Fusion technology is once more the answer.
9
AutomotiveFusion products make flat hemming possibleAutomotiveFusion products make flat hemming possible
Here we see a comparison of two pieces of conventional alloy material on top,
and two pieces of Novelis Fusion material on the bottom. All have been bent a
tight 180 degrees and you are looking at the face of the bend. If you look
carefully – and trust me, our customers do -- you can see that the conventional
material has surface cracks, while the Novelis Fusion sample doesn’t.
AutomotiveFusion products make flat hemming possibleAutomotiveFusion products make flat hemming possible
And here’s a side view of a flat bend. You can clearly see the thin clad layer in
this treated sample. And you can see there are no surface cracks.
10
An aluminum flat hem used to be something of an oxymoron in our business. Not
any longer.
Novelis Fusion in Industrial ProductionNovelis Fusion in Industrial Production
So, in summary…Today, Novelis is not just talking about Novelis Fusion
technology. This is not a mere concept. We are in the marketplace. We are
casting and rolling Novelis Fusion ingots in our facility at Oswego, New York, and
we are delivering product to our customers.
This innovation was brought to market by a talented but stubborn group of
incorrigible nonconformists in our company who refuse to look at process
metallurgy with a traditional view.
We believe their approach to the challenges of our industry epitomizes the sort of
R&D that is bound to produce still more game-changing breakthroughs in the
years to come.
11
The Next Generation of Products The Next Generation of Products
Novelis obviously stands to be the prime beneficiary of this innovation, at least
initially. Going forward however, we expect that — as has been the case with
earlier technological breakthroughs — this latest step will ultimately increase the
fortunes of many parties and help enhance the growth prospects of our industry.
Novelis Fusion technology marks a new milestone in the history of aluminum
fabricating. With its promise to improve current products and deliver a stream of
new products, Novelis Fusion technology breaks the barriers and unlocks the
possibilities for the next generation of aluminum applications.
12
Thank you for letting me share this news with you today. I believe that you’ll be
hearing a whole lot more about it in the years to come. Enjoy the rest of the
conference.
Now, assuming, there’s time, I would be happy to take a few questions.
# # #