NEW YORK Secondary aluminum alloy producers say that idled capacity is unlikely to be brought back online until the market becomes more profitable, despite a rise in light vehicle sales that is expected to give the sector a boost.
Automotive sales are expected to total close to 14.4 million vehicles this year and rise to 15 million in 2013, according to J.D. Power & Associates and LMC Automotive Ltd.
While alloy producers contacted by AMM agreed that the anticipated increase in auto sales next year should be a boon for the alloy market, they were less certain that it would encourage the return of idled production capacity.
"I think theyre all planning on getting back to 16 million cars at some point, but the big issue will be profitability," one producer source said.
"All of the smelters have additional capacity and could fire up a new furnace tomorrow," a second producer source said. "But it will continue to be a function of price. I could sell more, but Id have to sell cheaper and maybe lose more money just to keep that furnace full."
In fact, a source at one smelter said his company was currently trying to decide whether to idle one if its operating furnaces despite a recent uptick in demand. "Its that choice between trying to capture as much business as possible, or trying to make more margins on lower volumes by selling to better customers," he said. "In 2009, we just tried to produce as much as possible, and we realized that didnt always work."
Aluminum alloy producers have complained about compressed profit margins for much of 2012, with relatively high scrap acquisition costs widely reported as having affected margins.
A third producer source said the trend would probably discourage most companies from restarting production capacity. "Ask any smelter if theyd restart an idled furnace if the spread from old cast to A380.1 went from 28 cents to 35 cents, and theyd say yes," he said.