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ALUMINIZED SHEET Too tiny a niche for Wall Street to watch? Think again

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The North American market for aluminized sheet products is so small that it largely goes unwatched by the analyst community. At only 700,000 tons to 780,000 tons annually, it is a niche market that ebbs and flows based in large degree on consumer spending.

As such, demand for aluminized sheet moves almost in concert with the U.S. housing market, since it is often used in applications where heat resistance is of key importance appliances, cookware and barbecue grills. As the housing market moves up or down, so does the aluminized sheet market.

Aluminized sheet also is used in automotive applications, primarily in catalytic converters and other exhaust system parts in cars and light trucks. Thus, the strength or weakness of the market also depends a great deal on the number of vehicle builds in North America in a given year.

Analysts readily acknowledge that they don't track aluminized sheet, but their views and forecasts on the housing and automotive markets give an indication of what producers and consumers of aluminized sheet products can expect in the near future.

"I would say automotive demand for this year has been on the low side of normal," Mark Parr, steel industry analyst at KeyBanc Capital Markets LLC, Cleveland, said. "We've had a couple of weak months, and I would expect vehicle builds to stay right around 16 million units. When you look at the new American manufacturers that have come into the market in the last decade or so, I think overall what you will have is a pretty steady market. I would not expect that to change much, if at all, next year."

Continuing weakness in the North American housing market means there likely will be less demand for appliances and cookware that use aluminized sheet in heat-resistant applications. Some buyer sources say they currently are seeing some strength in the market for cookware, some of it coming from such sources as fast-food restaurants, and they expect that trend to continue in the short term. But the overall housing slowdown is a concern for many in the aluminized sheet market.

"I think there are some positive signs coming for housing," Scott Burns, senior equity analyst at Morningstar Inc., Chicago, said. "I think what you will see is the remodeling cycle catching up a bit. People are putting a lot of money into their homes. It may not be showing up in home construction, but they are putting in money to remodel, and when they do that it often leads to more buying of household goods."

Burns characterized the phenomenon as the remodeling myth. "I think you can look at this in some respects as 60-percent new business and 40-percent remodeling," he said. "I think a lot of things are happening—maybe smaller home-related projects—that don't show up in the home-building or housing start statistics. But they are happening. I think what you might see next year is a little more expanding of the remodeling business, even if you don't see it in the area of new home construction."


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