It ain't over yet. That's what aerospace metal producers have been saying as the past two years' frenetic growth cools down a bit in the first half of 2007.
"The only problem, if you will, is a short-term one—too much inventory in the system," said Tom MacDonald, global product manager of nickel-based alloys at Bohler-Uddeholm Corp., Rolling Meadows, Ill., a subsidiary of Austria's Bohler-Uddeholm AG. "But that's being worked off."
MacDonald believes that some people have already worked off their excess stocks, while others will have done so by the end of the second quarter and the remainder should be in balance by late in the third quarter.
MacDonald answers an emphatic "no" when asked if the bloom is off the aerospace rose, estimating that the market is likely to improve by 5 to 8 percent annually over the next three or four years. He noted that his parent company is installing more melting, forging and finishing capacity in Austria and new rolling capacity in Brazil. Bohler-Uddeholm's main aerospace customer for its nickel alloys and premium remelted steels is the jet engine industry, although it also sells to the power generation and oil and gas markets.
Marty Losch, vice president of North American sales for Haynes International Inc., Kokomo, Ind., said that market projections by Boeing Co., Chicago, and France's Airbus SAS indicate there's still plenty of growth left in aerospace. "Bottom line is, if you look at the projections there's no reason to believe we've passed the peak," said Losch, whose aerospace business is focused on superalloys mainly for jet engine applications.
Edward F. Sobota Sr., chief executive officer of Tech Spec Inc., which makes titanium long products in Derry, Pa., said the big question is "Can everyone's increased production come online to meet the increased demand we're going to face, probably toward the end of the year?"
The first part of the year has been marked by "a tremendous amount of quoting" but few solid commitments from customers. But rather than interpreting this lull as a sign that the surge in demand during the past two years has peaked, Sobota believes it merely reflects some "overbuying" whose impact will dissipate when a number of aerospace and energy programs approach full production.
"It's clear we're going to be in an upturn that's going to continue a bit longer," said John Ball, president and chief executive officer of Universal Alloy Corp. The Canton, Ga.,-based subsidiary of Switzerland's Alu Menziken Aerospace boasts that, along with Pittsburgh-based Alcoa Inc., it accounts for 80 percent of the global market for structural aluminum aircraft extrusions.
After breakneck growth the past year or two, market activity is up slightly in North America and Asia this year and has leveled off in Europe, probably due to delays on the Airbus A380, Ball said. Universal Alloy has taken the opportunity to start converting presses from direct to indirect operation, which typically results in more efficient production requiring less tonnage and superior metal flow. A newly installed heavy press also is indirect.
One issue for extruders and other aluminum metal buyers this year is feedstock costs. While Universal Alloy had earlier hedged material, Ball pointed out that few people expected it to move up by another $300 to $500 a tonne this year on the London Metal Exchange.