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
"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
"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
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.