NEW YORK Lean inventories
and strong end markets mean aluminum service centers and mills
will survive if the economy worsens and markets tank next year,
Kaiser Aluminum Corp. president, chief executive officer and
chairman Jack Hockema told AMM Wednesday.
"Say the fiscal cliff isnt
resolved and we go into a (financial) crisis. ... For us,
service centers and other mills, the impact wont be
nearly as severe as it is in other recessions. This is a
function of lean inventories in the total supply chain," he
"Inventories are so low in the
whole pipeline now," Hockema said. "We wont see a 30- or
40-percent decline (like in 2008). I always worry about an
economic downturn, but Im less concerned now because
inventories are so lean."
In 2008, service centers held
roughly 180 million pounds of rod and bar and 2.8 months of
inventory on their floors. Once the financial crisis hit,
service centers began frantically destocking, bringing
inventories down to 90 million pounds in 2009, or 2.6 months of
stock on the floor, Metals Service Center Institute (MSCI) data
These effects were felt
throughout the supply chain.
In October, U.S. service centers
held 120 million pounds of rod and bar, or around 2.2 months of
inventory. Couple this with the level of service center
destocking thats occurring now, and Hockema argues that
service centers and mills are much better equipped to deal with
a recession should markets turn sour next year.
"Theres no telling how
deep the downturn might be, but the multiplier effect should be
less," Hockema said.
Aerospace is an area that should
weather a downturn, the Kaiser executive noted.
"I dont know where the
economy is going. But in aerospace, I am extremely confident
even if we do have a downturn," Hockema said. "Airlines may
take a bit of a blip. It happened with (the) SARS (virus in
2003) and after 9/11. But the effects airlines feel are short
term. Boeing Co. and Airbus ASA will keep their long-term
Boeing and Airbus backlogs
have recovered to 8,000 models after dropping to 7,000 models
in 2009 from 7,500 models in 2008.
In the past, however, automotive
demand has taken longer to come out of recession, and Hockema
noted that the effects of a downturn in 2013 shouldnt be
too severe on the automotive industry, given pent-up demand to
replace aging vehicles.
"Im not so sure that auto
can sustain a potential downturn, but I expect that any
downturn will be less severe because the age of the fleet and
pent-up demand will serve to cushion the decline," he said.
Substitution of aluminum for
steel in vehicles should also help the sector in the long term,
with forecasts estimating that the average volume of aluminum
per vehicle will increase to 550 pounds by 2025 from 343 pounds