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Taking turns: Metals will share the auto supply chain

Keywords: Tags  auto metals, auto manufacturing, high strength steel, cast aluminum, Alcoa, Novelis, ArcelorMittal SA, Severstal Gregory DL Morris

As a romantic image, it’s hard to beat the all-steel car vs. the all-aluminum car, side by side, engines roaring, poised to race for the future of automobile manufacturing. But look under the hoods, and you’ll find both of those roaring engine blocks are made of cast aluminum. That is the real story. The rivalry between steel and aluminum in the auto sector is mostly a myth.

Cast aluminum has effectively taken over from cast ferrous materials in almost all automotive applications. In the next few years, it is expected that high-strength steels and rolled aluminum will replace most mild steels in the rest of the car. Increasingly, engineers are selecting freely between aluminum and high-strength steel part by part in the chassis. The challenge is not to box out the other material, but to work with fabricators and automakers to enable the supply chain and assembly process to work smoothly with both metals.

To underscore those trends, Pittsburgh-based Alcoa Inc. recently broke ground at its Davenport, Iowa, complex on a $300-million expansion of rolling capacity, as well as the first commercial operation of its 951 bonding technology. The company said that most of the new capacity is already secured into the automotive sector, while the bonding technology will be licensed to original equipment manufacturers (OEMs) and their key suppliers.

Novelis Inc. will be the next aluminum maker with a major expansion. The company makes automotive sheet in Germany and at a mill in Ontario. The Canadian plant has been upgraded recently and expanded by 25 percent to 50,000 tonnes per year. Novelis is raising the ante considerably, with plans for a $200-million, 200,000-tonne-per-year mill for automotive grades in Oswego, N.Y. Construction is already under way, and limited production will begin in 2013, with full production expected to come online the following year.

The 300-percent increase in capacity at Oswego is indicative of how Novelis views long-term growth of demand in the regional vehicle sector, said Brad Soultz, vice president of global specialty products and general manager for automotive in North America for Novelis. Current imports of about 40,000 tonnes a year will be scaled back, but there are no significant plans for exports from the new mill. Other than occasional balancing, Novelis plans for each region to meet its own needs.

Recycled material also will figure largely into the mix at the new mill. Soultz said scrap currently provides about 15 percent of the input across the entire company worldwide, but that will rise to 50 percent by 2015 and 80 percent by 2020.

“We are looking at the multiple substrate solution,” Soultz said. “It is fairly safe to characterize the North American market as following Europe in that respect. First we are seeing closures, such as hoods, decks and doors, moving to aluminum, then components of the body-in-white (the assembled chassis or frame without closures, drivetrain or trim).”

Novelis, spun off from Alcan Inc. in 2005 and now privately held after a few years of being publicly traded, claims 65 percent of the global automotive sheet and body-in-white market for aluminum, according to its own analysis. The company operates the world’s largest rolling mill at Norf, Germany, as a joint venture; the largest continuous caster in the world at its Saguenay Works in Jonquiere, Quebec; and a 1-billion-pound hot mill at Oswego.

Downstream, Novelis is not seeing much variation in volume or type for new-technology vehicles. The company is working on some new applications for battery packs and for heat transfer, Soultz said, but broadly “any driveline benefits from a lighter vehicle, whether the powertrain is gasoline, diesel or any of the alternatives coming into commercialization.”

It is well known that steel has lost a few pounds per vehicle in each design cycle for many years. But steel mills and industry analysts note that the whole vehicle is lighter each time as well, and that on a percentage basis steel has seen only incremental decreases. One analyst said the foreboding that some mills hold for the auto sector is a gloom they bring upon themselves, arising from the congenital obsession with tonnage rather than profitability.

There are at least two big steel companies well known for their more pragmatic approach to the auto sector. ArcelorMittal SA has been carrying the flag with its S-in motion initiative (2011 winner of AMM’s Best Process Innovation award), demonstrating steel applications from bumper to bumper. Severstal North America Inc. was among the first to get on board the multi-metal idea for vehicle components, actively working with automakers and their Tier 1 suppliers not just on parts but on material handling and supply-chain solutions. In all cases, the focus is on high-strength steels and beyond, which early adopters see as a competitive advantage.

“Not all steel companies can make the more-advanced high-strength steel grades and make them well,” said Robert DiCianni, marketing manager for ArcelorMittal USA. “This new market will reduce the number of available suppliers. There will be less commodity steel used in future vehicles, which will be a disadvantage for some current suppliers. The companies that are lagging behind today will try to catch up over the next several years, and the companies who are leading today, including ArcelorMittal, will work to maintain their lead and try to move into even more exotic steel grades.”

The brave new world applies to processors as well, DiCianni said. “The companies today who are processing steel, such as slitting and blanking, will also have to become more sophisticated, and the Tier 1 suppliers who make parts such as door beams, bumper beams or seats also will have to become more advanced. Those who do not make these changes will be left behind.”

While steel mills are investing in research and development, the biggest challenge they see in the auto sector is not in metallurgy but in the tonnage mentality both for mills and for fabricators. DiCianni’s belief is that steel suppliers must continue to upgrade their capabilities and for processors and parts makers to do the same.

“That naturally implies investments in new equipment, which means higher costs through the supply chain,” he said. “Auto production is a very complex topic, and it is not easy to generalize. But we have done studies that show auto companies can use (advanced) high-strength steels without a significant cost penalty and, in many cases, there is a cost benefit. Even though the steel they are buying is more expensive on a per-ton basis, they use less of it, which results in the potential for a cost benefit.”

It helps that the outlook for retail sales includes rising prices, but only if the automakers can make a convincing case for value, not price. “For consumers, we are definitely looking at more expensive vehicles,” DiCianni said. “The problem is that consumers are not willing to pay for things they don’t value. They value safety, comfort and features, and they are willing to pay for those things. The majority of consumers will not value better fuel economy if the price of gas is not high. Market supply and demand have managed to maintain relatively low gas prices in this country and probably will continue to do so.”

In all of this, the market drivers are inherent trends across all mainstream vehicle types. For all the attention that alternative-fuel cars are getting, they remain a niche market from the manufacturing perspective. ArcelorMittal cites JD Power & Associates Inc., IHS Global Insight Inc. and almost all automotive forecasters as calling for about a 2-percent market share for hybrid and electric cars—and no more than 3 percent—by 2020.

“We are at about 2 percent now,” DiCianni said, “which basically means no growth on a percentage basis. The only thing that will make this market grow is significantly higher gas prices; $4 a gallon is not enough to make this market grow faster. Fuel-cell vehicles are well over the horizon. We are not going to see fuel cells before 2020 or 2025.”

Rather than exotic materials and alternative powertrains, the challenge is optimizing performance for each component, then translating that design specification back through the supply chain. “Car companies are selecting the best metal for each application,” said Jim Mortensen, general manager for automotive sales at Severstal NA. “There are a lot of steep challenges for automakers—fuel economy, crush parameters, safety standards—all on top of their own considerations for improvements and competitiveness.”

Severstal is a major supplier of high-strength steels, advanced high-strength steels and on into ultra-high-strength steels. “We consider the whole body of the car,” Mortensen said. “When we develop new grades and new rolling capabilities, we are not just looking for higher strength but also higher ductility. It has to balance to fit into the designs of the manufacturers.”

In another iteration of the value proposition, there has to be a sound economical argument for the mill. “Part of the reason automakers have not used new materials over the past few years is that the grades are not commercially available. The fabricators have to believe a commercial supply will be available before they specify a metal, but the mills have to believe that there will be demand before they commit to production,” Mortensen said. “We work as closely as we can with the original equipment manufacturers, but typically it is very difficult for them to agree to purchase a particular material far into the future.”

That conundrum means that mills have to design their plants with as much flexibility as possible. That does incur extra costs, but in effect it is a form of hedging. Since 2007, Severstal has invested $1.4 billion in its Dearborn, Mich., complex. Not all of the output from that facility goes into automaking, but a large portion does. Mortensen said further investments in ultra-high-strength steels, both coated and uncoated, are being evaluated, but he could not disclose any details.

In contrast to the challenges that steelmakers have in matching new grades to demand, aluminum mills say that grades on the market today are the ones that will carry through for years or decades. The focus is more on applications than on metallurgy. “For the past 30 years, about 80 percent of the aluminum in cars has been castings—suspension, cylinder blocks, transmissions,” said Doug Richman, vice president of engineering and technology at Foothill Ranch, Calif.-based Kaiser Aluminum Corp. and technology chairman of the Aluminum Association’s Aluminum Transportation Group.

“In terms of pounds on the vehicle, cast has been the story,” Richman said. “But those applications are reaching saturation. From here on out, that disposition changes radically. The main growth will be body and closures from now to 2020. That is the next frontier, and we are aggressively pursuing it, from closure panels to the whole body-in-white, in wrought sheet and extruded aluminum.”

Richman cited a recent Ducker Worldwide LLC study that found the 343 pounds of aluminum on an average car today will rise some 60 percent to 550 pounds by 2025. That said, he believes the growing market is big enough for both aluminum and steel. “We are looking at a 200-pound-per-car gain, but we also know that many applications will be multi-metal. That is the emerging concept,” he said. “Up to now, the idea has been the monolithic steel or aluminum car. But there are more than 100 individual components to a body-in-white, and the OEMs are making their decisions part by part (for) what metal is best for each component.”

As with any optimization, focusing on performance in any one area—the finished vehicle—imposes suboptimal conditions on other areas, such as material handling and assembly. Steel components often are moved by magnet—not an option for aluminum parts. Steel and aluminum parts can be spot-welded to other like parts, but not to each other. Requirements for bond-fastening also differ.

“There are a limited number of OEMs who have experience with these mixed metals,” Richman said. “The Audi A8 series is known as an aluminum car, but it is actually multi-metal—not just aluminum, but high-strength steels and magnesium. There are very significant handling and assembly issues, but they can be overcome. Like all change, some will resist and some will be early adopters. In the long run, some will make it and some will not.”

Strategically, even an aluminum guy like Richman is quick to acknowledge that “there will be steel in cars forever. And there is going to be a lot of steel in the industry for a very long time. Aluminum is new in many applications. One thing the Tier 1s and OEMs know, however, is that there is not going to be any shortage of capacity in aluminum for the auto market. The design process is a multi-year cycle. We can add capacity faster than the car makers can move from concept to manufacture.”

As a former executive at General Motors Co., Richman has worked both sides of the supply chain. “For the past 30 years, there has been uninterrupted growth in aluminum, at a rate of 7 pounds per car per year. And that rate is actually lower than what Ducker is projecting from now to 2025.”

For all the gains in aluminum, “there is still more steel in the vehicle than anything else,” said Dick Schultz, managing director at Ducker, “and there still will be, for the rest of my lifetime at least.” Currently, cars are 56 percent steel, according to Ducker, of which 26 percent is mild, 13 percent is high-strength steel, 2 percent is advanced high-strength steel and 15 percent is all others, primarily rod and bar.

By 2015, the total will have slipped just two points to 54 percent, but the divisions will be very different: 17 percent mild, 14 percent high-strength steel, 7 percent advanced high-strength steel and 16 percent long products. “Mild steel is coming down, mostly to be replaced by aluminum,” Schultz said. “Advanced high-strength steel is growing the most, with some gains in high-strength steel as well.”

While the components are being shuffled, Schultz stressed that “steel is fighting the good fight, and some mills are doing a great job. Steel has actually been very successful in holding off aluminum for several product cycles.”

On the aluminum side, he said, just two producers—Alcoa and Novelis—will have more than quadrupled their auto-body sheet capacity in North America by the end of 2014. That’s a testament to the growth in that sector, Schultz said, but “we will definitely see some new players. The OEMs are not comfortable with just two suppliers.”

Other segments of the value chain have opinions, too, according to Charles Bradford, president of New York-based Bradford Research Inc. “The beauty of steel closures is that body shops are more capable of repairing them,” he said. “There is also the advantage steel parts have in handling. Magnets have proven to be extremely efficient, and many assembly plants are set up for that.”

That said, Bradford notes there are other applications in which aluminum has gained some traction. One is in wheels. “There are a lot of pounds in wheels, and aluminum in that application is a huge winner.” Another potential big opportunity is in the electrical system. “That is almost all still copper,” he said. “I would really like to see aluminum wiring.” That would require different grades, because most of the aluminum in automobiles is secondary, which is not electrically pure, Bradford said. Most sheet is primary, but with the increasing emphasis on scrap inputs to sheet mills, that too may be changing.

Highly technical grades also are an area of focus on the steel side. DiCianni said that “the raw materials used in advanced high-strength steel will see higher levels of demand. A good example would be something like molybdenum. In the early part of the last decade, moly was selling for less than $5 a pound. Over the last several years, it’s been in the range of $30 to $35 a pound. All raw materials have increased over the last decade, but this is a bigger increase on a percentage basis than what we have seen in general for steelmaking raw materials.”

Blake Zuidema, director of automotive product applications at ArcelorMittal, said that significant gains are still possible for advanced high-strength steels in both strength and formability. “We are really pressing the curve out higher and to the right,” he said. “Through our S-in motion program, we have gotten to learn what each part of the car wants to be. Now we are working on new chemistries, new properties and new microstructures, and in parallel working on the processes to make those advances commercial. The first course is always to retrofit existing equipment, but where there are compelling opportunities, and if manufacturing requires a different process, then at least we are engineering those process solutions.”

As steel seeks greater strength and ductility, ferrocolumbium will continue to figure into the mix, especially for the “cage,” roof side rails, center pillars and floor sills. Brazilian firm Cia. Brasileira de Metalurgia e Mineração’s Reference Metals Co. supplies three-quarters of the world’s ferrocolumbium, mostly out of Brazil.

“Standard grades run from 350 (megapascals) to 1,100 MPa,” said Steven Jansto, market development manager at CBMM-Reference Metals. “We are working in areas up to 1,500 MPa, but most of the tonnage is in the lower grades—the 350s, 590s and 690s.” Ferrocolumbium is a growth market, he said, but it is still recovering from the recession. “Shipments are still only 75 to 80 percent of 2008 levels.”

In the long run, all of the changes in steel and aluminum supply to the auto sector will have a rich dividend, Schultz said. “North America will have the most fuel-efficient vehicles in the world. That will benefit some suppliers, and ultimately will cultivate a stronger export market for vehicles from this region.”

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