Aluminium part of Noble Group's base metals stockpile sell-off

Noble Group has not publicly commented on a series of high-profile departures from the metals group. Company officials have privately portrayed it as a shift away from non-core, capital-intensive areas.
Noble Group has not publicly commented on a series of high-profile departures from the metals group. Company officials have privately portrayed it as a shift away from non-core, capital-intensive areas.PHOTO: REUTERS

Noble Group's efforts to free up capital by reducing stockpiles of base metals include selling off some of its large holdings of aluminium, historically one of its biggest businesses, sources said. As part of a strategy to shrink its metals franchise - the second-biggest division by revenue after energy - Noble has been quietly selling copper, zinc and lead since July, two sources familiar with the matter said.

The company has not publicly commented on the changes or on a series of high-profile departures from the metals group.

Still, company officials have privately portrayed them as a shift away from non-core, capital-intensive areas as the company focuses on its legacy strengths, which include alumina and aluminium trading.

Yet the inventory reduction has also occurred in aluminium, the sources said, suggesting that the metals division shake-up may be deeper than widely known. "Inventories across all commodities have been ordered down to free up cash since Q2," said a source familiar with the matter.

He said sales of copper, lead and zinc will likely continue as the company cuts its exposure to capital-intensive markets like copper and following the departure of the traders.

But the aluminium business has been hit by the "meltdown"earlier this year in premiums, which are surcharges paid on top of the benchmark London Metal Exchange for physical delivery of metal, he said. In August, Noble blamed the second-quarter loss at its metals and mining division - the first in at least five years - on the unprecedented plunge in premiums. The metals and mining business accounted for about 20 per cent of group's US$18 billion (S$25 billion) quarterly revenue.

Noble's rival Glencore is also offloading excess stock to help pay off debt.

Glencore has said it would cut its "readily marketable inventories" by US$1.5 billion and would reduce working capital by an additional US$1.5 billion, partly from liquidating more inventories.

It was not clear how much metal Noble has sold, but one of the sources said it has sold less than Glencore has. Noble's aluminium book is considered one of the largest in the industry, competing with Glencore and Trafigura.

Traders said they have not seen much evidence of Noble's sales in the market.

Still, the release of unwanted stock on the market already awash with metal has likely kept premiums under pressure.

US surcharges have steadied near two-year lows of 8.5 US cents per pound in recent months after plunging by more than 60 per cent since March amid concerns about waning demand from China, the world's top consumer.

REUTERS

A version of this article appeared in the print edition of The Straits Times on October 14, 2015, with the headline 'Aluminium part of Noble Group's base metals stockpile sell-off'. Print Edition | Subscribe