CHICAGO Aleris International Inc. is betting on a better 2014 after a difficult 2013, the companys top executive said.
But the improvement will have to come in the face of a skyrocketing Midwest aluminum premium and a harsh winter that could hurt first-quarter results, Aleris chairman and chief executive officer Steven J. Demetriou said during a conference call following the release of its latest earnings data (amm.com, March 10).
The "unprecedented increase" in Midwest premiums in early 2014which spiked to more than 20 cents per pound in January (amm.com, Jan. 16)prompted customers to slash inventories and reduce orders, Demetriou said, and also attracted imports not impacted by Midwest premiums.
"Overall, the significant increase in Midwest premium creates volatility in rolled products North Americas results. But we remain hopeful that this will stabilize in 2014," he said.
The severe winter weather across much of the Midwest and East Coast caused customer shutdowns and shipment delays as well as reducing scrap availability, Demetriou said, but such headwinds should be temporary and "improve as the weather improves."
Among downstream markets, the biggest disappointment for Aleris in 2013 was continued sluggishness in aluminum demand from the building and construction sector despite improved U.S. housing starts, Demetriou said. "The expected industry volume ramp up in growth has been slower than anticipated as housing starts are not converting to housing completions as quickly as they have in the past," he said.
Construction demand should kick in as housing starts are expected to increase to 1.2 million this year from 927,000 in 2013, Demetriou said. "Although the aluminum industry has yet to realize significant benefits from these building trends, we anticipate that once single-family housing completion reaches a normal pace our volumes will increase accordingly."
Also dragging on performance was an aerospace inventory overhang that is expected to "persist throughout 2014" because of production delays with certain aircraft models, Demetriou said. The glut comes despite "record backlogs" of about 10,600 planes85 percent of them based on aluminum platformsat airplane manufacturers Boeing Co., Chicago, and Airbus SAS, Toulouse, France, he said.
Still, Demetriou remained bullish on the aerospace sector over the long term. "We believe the backlog in customer build rates will translate into higher aluminum demand," he said.
Aleris also is optimistic about prospects in the automotive sector, given automakers push to use lighter-weight materials, Demetriou said, which should boost demand for auto body sheet. He noted that the company saw revved up orders from the premium vehicle market in Europe in the second half of 2013.
Another positive for Aleris are "pockets" of increased plate and sheet demand as well as "pricing stability" in parts of Europe, Demetriou said.
Aleris also has high hopes for Quanex Building Products Corp.s Nichols Aluminum LLC subsidiary, Demetriou said. Aleris signed a definitive agreement last month to acquire Nichols from Houston-based Quanex for $110 million (amm.com, Feb. 10). The deal is expected to close March 31 (amm.com, March 6).
The acquisition should boost Aleris geographic footprint and capabilities as well as "ensure that we are well-positioned to respond to projected growth in our key end uses as the economy recovers," he said.