Copying and distributing are prohibited without permission of the publisher
Email a friend
  • To include more than one recipient, please separate each email address with a semi-colon ';', to a maximum of 5

Kaiser bringing forward plant outages

Keywords: Tags  Kaiser Aluminum, Jack Hockema, aerospace, automotive, general engineering, industrial, capacity expansion, maintenance inventory

CHICAGO — Kaiser Aluminum Corp. plans to bring forward its planned capacity expansion and maintenance outages in the wake of weaker-than-expected demand from some sectors and an inventory overhang in the aerospace market.

"While the headwinds are unwelcome, we will take advantage of the situation," Jack A. Hockema, chairman, president and chief executive officer of the Foothill Ranch, Calif.-based company, said during an earnings conference call with analysts.

Kaiser has scheduled equipment downtime at its Trentwood, Wash., facility for construction related to capital projects, as well as "major" maintenance projects at its operations in Newark, Ohio, he said.

The company has slated $80 million in capital spending for 2013, including a new casting complex and a 10-percent expansion in heat-treat plate capacity at Trentwood that should be online in early 2014, Hockema said. Kaiser also plans to spend $15 million to boost automotive extrusion capabilities at its facilities in Bellwood, Va.; Kalamazoo, Mich.; London, Ontario; and Sherman, Texas.

London will remain the primary facility for launching new automotive programs; Kalamazoo will focus on products compatible with its primary mission of supplying rod and bar for the general engineering market; Bellwood will focus on driveshafts and other tubing applications; and Sherman will provide additional capacity for bumpers and automotive structural applications.

"Our planned investments in automotive extrusions are a result of new programs booked and the need to ensure that we have the breadth and depth of capacity and capabilities ... to meet customer needs," Hockema said.

Kaiser expects automotive build rates in 2013 to be roughly on par with levels seen in 2012, a year that brought a "step change" in terms of boosted automotive production.

In the near term, Kaiser’s growth in the automotive sector could be hurt by lower exports of anti-lock braking systems and a trend toward smaller components, such as engine blocks, Hockema said. But aluminum content in the automotive sector should grow in the second half of 2013 and going forward as new programs are launched.

In the aerospace sector, Kaiser continues to be hurt by an inventory overhang that has clouded results since at least the fourth quarter and that could "continue for a while," Hockema said. The overhang has impacted extrusions, drawn tube, rod and bar, wire, sheet, and—in some specific instances—plate, and comes in the wake of past concerns about supplier readiness to meet expected growth. He said Kaiser is "cautiously optimistic" that the aerospace inventory situation will ease in the second half of the year.

"Our long-term proposition remains intact, as we expect strong secular growth for aerospace applications and automotive extrusion applications," Hockema said.

But one sector that might continue to struggle, at least in the short term, is general engineering and industrial applications.

"The economy continues at an anemic pace. Exacerbating the situation, we are not experiencing the benefit from significant supply chain restocking that boosted demand during the first six months of each of the prior three years," Hockema said.

Still, that cloud might have a silver lining in the second half of the year, he said, noting that in the past three years customers might have exhibited "irrational exuberance" during the first half of each of those years, which led to customer overstocking and then a precipitous destocking during the second half of those years.

But examining data going back to roughly 2000, Kaiser found no lockstep cycle of customers consistently stocking up in the first half of the year and destocking in the second half, Hockema said. "There really is no pattern. It’s just what happens to be going on at the time and what people’s attitudes are about the economy."

And with concerns about everything from sequestration to the health of the economy, sentiment has been anything but bullish in early 2013, Hockema said. That means there is reason to think customers, who might be exhibiting caution now, will restock in the second half. "This gives us some benefit in the second half ... assuming the economy doesn’t go in the tank."

Have your say
  • All comments are subject to editorial review.
    All fields are compulsory.

Latest Pricing Trends