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Aluminum shipments off but market upbeat

Jan 16, 2014 | 04:24 PM | Michael Cowden

Tags  aluminum, Metals Service Center Institute, MSCI, Lloyd O'Carroll, O'Carroll Aluminum Bulletin, Timothy Hayes, Lawrence Capital, aluminum shipments aluminum inventories

CHICAGO — U.S. service center aluminum shipments were off slightly last year compared with 2012, although gains in the second half of the year—including December—offset first-half weakness and suggest better times in 2014, service center sources and industry analysts said.

Aluminum shipments tend to be strong in the first half of the year and tail off in the second half, market sources said, but 2013 saw the opposite pattern, with year-over-year shipment gains in five of the last six months of the year. Inventories built toward the end of the year, but that likely occurred as companies stocked up in anticipation of a strong new year, they said.

"Volumes were particularly strong in the second half, and of course the seasonal pattern is the reverse," said Lloyd O’Carroll, principal of O’Carroll Aluminum Bulletin. "I’d call it reasonably healthy, and demand seems to be accelerating, from everyone I’ve talked to."

If the housing market continues to gain steam, 2014 should be a particularly good year for aluminum service centers, O’Carroll said. The year also should see increased automotive demand, he said, noting that service centers should benefit from shipments to small parts suppliers even if contracts for big parts, such as body panels, generally are direct between mills and automakers.

U.S. service centers’ aluminum shipments totaled nearly 1.48 million tons last year, off 0.7 percent from 1.49 million tons in 2012, according to the latest Metals Service Center Institute (MSCI) data. December shipments jumped 13.3 percent to 104,200 tons from 91,900 tons a year earlier, and inventories at the end of the month climbed 3.3 percent to 377,800 tons (3.6 months’ supply at current shipping rates) from 365,600 tons (4.0 months’ supply) in December 2012.

Canadian service centers shipped 153,100 tons of aluminum in 2013, down 2.5 percent from 157,100 tons the previous year, according to MSCI data, although December shipments of 8,800 tons were up 3.5 percent from 8,500 tons in the same month in 2012. Canadian inventories totaled 36,400 tons (4.1 months’ supply) at the end of December, down 6.2 percent from 38,800 tons (4.5 months’ supply) a year earlier.

Feedback from customers for 2014 has been positive and the outlook for the year is "very bullish," one service center source said, noting that increased demand is coming from several product segments and business sectors.

Marine defense contracts, for example, which were scheduled to be released in fall 2013 but were delayed because of sequestration and budget wrangling, have since been released, he said. "And when they pull the trigger, they go fast."

Demand also is coming for extrusions and flat-rolled products for signs as well as parts for oil and other liquid tankers, the service center source said. In addition, some stamping and laser-cutting work that had been sent to Mexico or China is being brought back to the United , while demand for automotive gaskets also is helping business.

"We’re counting on 2014 to be better than 2013. (Gross domestic product) is up, and we’re hoping (aluminum) shipments will follow," he said.

Aluminum shipments trended in the right direction in the second half of 2013, but it remains concerning that annual shipments lagged 2012 levels, Timothy Hayes, principal of Lawrence Capital, Richmond, Va., said. "We hear a lot of talk about how the manufacturing sector seems to be doing better than the overall economy. "But aluminum service centers don’t seem to be sharing in that, if indeed it is happening, so it shows that the economy is far from hitting on all cylinders."

In the nonresidential construction sector, for example, macroeconomic data has been more positive that what individual companies are reporting, Hayes said. And given such concerns, inventory builds could be a problem.

But chances are that nonresidential construction, like much of the rest of the economy, will improve in 2014, Hayes said. "The (shipment) trend in the last few months of 2013 looked pretty favorable, so I think we’re setting the stage for aluminum service centers to have a better 2014 and probably post shipment increases in the low single digits."

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