The transportation and energy sectors have driven the aluminum market so far in 2012, and all signs point to growth continuing through much of the rest of the year, market players say. In fact, only continued sluggishness in the construction sector is keeping the industry from sounding the bells for an all-out, full recovery.
North American aluminum extrusion markets are showing convincing signs of sustainable growth, with demand expected to rise further in 2012, billet producers and extruders told AMM at the Aluminum Extruders Council conference in Scottsdale, Ariz.
Aluminum extrusion demand will grow by 5 to 8 percent this year on the back of strong demand from the truck and trailer and automotive industries, said Jeff Henderson, director of marketing for Sapa Extrusions North America, a Rosemont, Ill.-based division of Swedish aluminum extruder Sapa Group. All end marketswith the exception of building and constructionwill experience growth this year, he said. "We still believe there are a lot of houses in the supply chain and its still being worked through. Hopefully, the economy will continue to improve."
Although housing prices are low, it will still take time before confidence returns to the building and construction markets, Henderson said. "We think any real recovery in building and construction is two to three years away."
"(Building and construction) is still a ways off," a producer source agreed. "But everything else is solid."
Tightness in the North American billet market, which participants attributed to a number of outages and increased demand (AMM, Feb. 6), was another topic of discussion in Scottsdale. Billet markets have been busy since the end of January, although some question how long this will continue.
"Its been a nice start to the year. There has been a burst of orders as restocking takes place," Henderson said. "Well see how it plays out. We understand it could get better, but weve also seen false starts before. Certainly, weve seen a more compelling argument this year that this recovery (is real). Unemployment figures are coming down, and were seeing some economic recovery."
The producer source agreed that all evidence supports a legitimate recovery this year. "People are buying cars. Thats always a good gauge," he said.
Anti-dumping duties on some Chinese extrusions also have contributed to the renewed strength in extrusion markets, industry participants said. The duties, implemented in May 2011, have been positive for domestic extruders, according to International Trade Commission data, which showed U.S. imports of Chinese aluminum extrusions plunged 98 percent to just 4,217 tonnes last year from 181,613 tonnes in 2010.
In another corner of the aluminum market, United Co. Rusal deputy chief executive officer Oleg Mukhamedshin told AMM his company remains fairly bullish on 2012, forecasting global growth of 7 percent in primary aluminum consumption and anticipating that all regions outside of Europe will experience a pickup this year. Rusal predicts aluminum consumption will increase by 11 percent in China, 10 percent in India, 6 percent in Russia and 5 percent in North America, Latin America and Japan, although European consumption will be flat.
Despite a reasonably optimistic outlook, the Russian producer has stated publicly that it is contemplating cutting its total aluminum production by 6 percent in the next 18 months, although Mukhamedshin said that number isnt set in stone. "We should decide by the end of the year," he said, adding that if the company goes ahead with capacity curtailments it likely would occur at its high-cost smelters in Europe.
But as Rusal ponders its production levels, others are increasing capacity. Titanium Metals Corp. (Timet) aims to boost its role in the engine market with new melting capacity while also installing new titanium powder capabilities.
Timet has commissioned a plasma cold-hearth melt furnace at its Morgantown, Pa., facility that president and chief executive officer Bob OBrien said will increase its ability to meet a growing demand for "complex, high-temperature alloys" that will be used extensively in the newest generation of aircraft engines.
Dallas-based Timet is already a major source of titanium produced by another cold-hearth technologyelectron-beam meltingvia an existing furnace in Morgantown. The company said in documents filed last year with the Securities and Exchange Commission that electron-beam technology accounted for 46 percent of its total annual global melting capacity of 68,450 tonnes (nearly 151 million pounds), with more conventional vacuum-arc remelting accounting for most of the balance.
Most observers agree that an upturn in titanium consumption that began in 2010 has been due largely to engine-related demand rather than airframes.
At the same time, Timet has purchased "certain assets, intellectual property and know-how" that will allow it to produce value-added titanium and other specialty alloy "Prep" powder, the company said. The technology is believed to refer to the plasma-rotating electrode process, although a Timet executive didnt respond to a request for further comment.
Timet didnt reveal who sold it the Prep assets, although the company said it has begun installing and upgrading the equipment and expects the powder facility to be operational by the second half of this year, allowing Timet to "efficiently achieve near-net-shape manufacturing of complex parts."
Timet isnt the only producer adding to its cold-hearth melt capacity. The largest plasma-arc melting capacity of any U.S. titanium producer is believed to be held by Pittsburgh-based Allegheny Technologies Inc., which noted recently that a fourth plasma-arc melting furnace is in the qualification stage at its ATI Allvac facility in Bakers, N.C. The furnace will support "growth in demand for high-value products in 2012," according to ATI, which also has electron-beam melting capacity in Richland, Wash.
Meanwhile, a third titanium producer looking to increase its profile in the engine market, Pittsburgh-based RTI International Metals Inc., is augmenting its existing plasma-arc melting capacity with a new electron-beam furnace that is due to be completed by year-end and be operational in 2013.
RTI vice chairwoman, president and chief executive officer Dawne S. Hickton said during a conference call with investors that the companys new cold-hearth electron beam furnaceinstrumental in its efforts to increase RTIs jet engine businessis on track to start up at its RTI Alloys subsidiary in Canton, Ohio. Meanwhile, RTIs new Martinsville, Va., mill products plant became operational in the first quarter, delivering its first forged product.
Additionally, slight gains in primary metal prices and strong demand from auto consumers allowed secondary aluminum alloy prices to tick up earlier this year. "Scrap is tight and demand is good," one source said.
Another source expects heightened auto demand to push ingot prices to six-month highs. "Automotive is very busy," he said. "Prices are up and down right now, but will go up 2 to 4 cents through the second quarter."
Nevertheless, producers, traders and analysts overall are predicting modest growth for the aluminum industry.
Alcoa Inc., Kaiser Aluminum Corp. and Century Aluminum Co.s top executives are optimistic due to strong forecasts for the automotive, aerospace and transportation sectors.
Most market participants agree that China is the country to watch in 2012. Many are confident that China will drive aluminum growth because the country does not have its own sustainable aluminum industry, which could provide opportunities for Western companies to partner with Chinese firms.
There also are opportunities in Chinese infrastructure. "We think the China infrastructure build-out has several more years left," one industry executive said, forecasting 14-percent growth for 2012. "The interior of the country is far from being built. That will drive all commoditiesincluding aluminum."
Gayle Berry, vice president of commodities research at Barclays Capital, agreed. "In terms of China, Im very positive," she said, adding that impressive growth rates there were offsetting soft vehicle production sales.
Still, some point to a potential real estate bubble forming. "We need to watch China," one market participant said. "Theres evidence that says the Chinese economy is slowing down. The real concern is about the extent to which their building and property market has been overheated. . . . Its key to whats going to happen in terms of price."
China also has its own debt issues, according to David Wilson, former head of metals research at Société Générale SA who now is director of metals research and strategy at Citis investment research and analysis division. "Debt is not just a Western World issue. Its a big issue in China," Wilson said at a Metal Bulletin conference in Paris late last year. Most of the countrys regional governments are carrying massive debt, yet questions remain about whether the Chinese central government can even afford to bail out regional governments, he said.