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Analysts predict spike in aerospace plate use

Keywords: Tags  aerospace, aluminum, plate, Davenport & Co., Lloyd T. O'Carroll, John F. Ockerman, Boeing, Airbus composites

CHICAGO — Aerospace aluminum plate demand is expected to surge in coming years as aircraft manufacturers make more and bigger planes and aluminum-lithium alloys gain traction in the market, according to a recent analyst report on the sector.

The potential growth should significantly boost prices, increase mill capacity utilization rates and encourage aluminum companies to add new capacity, Davenport & Co. LLC analysts Lloyd T. O’Carroll and John F. Ockerman said in a recent research note.

"Rising aluminum demand for aerospace aluminum plate should outpace planned increases in supply, pushing the industry’s effective utilization rate to its highest level since ’06, a time when prices spiked and OEMs (original equipment manufactures) pressured mills to add capacity," O’Carroll and Ockerman wrote in the July 15 note.

Aluminum plate demand for aircraft is expected to rise 62.5 percent to 798 million pounds in 2017 from 491 million pounds in 2012, the analysts said. Meanwhile, mill capacity utilization is expected to rise to 62 percent in 2013 from 57 percent in 2012 before shooting up to 78 percent in 2017, they said.

That equates to aluminum demand seeing a compound annual growth rate (CAGR) of 10 percent for 2012-17, the analysts said, noting that rising capacity utilizations rates should give mills leeway to "gradually increases contract prices" with major aircraft manufacturers such as Chicago-based Boeing Co. and Toulouse, France-based Airbus SAS.

Given an expected tight plate market in coming years, spot pricing for aerospace plate could see a rebound and move "meaningfully above" contract prices, reversing a trend in recent years of spot prices hovering below contract prices, the analysts said. "Prices could ... reach or exceed the (2006) peak if OEMs do not push the plate mills for new expansions," they said.

Bolstering higher build rates and increased aerospace aluminum plate consumption are backlogs at Boeing and Airbus of 9,900 aircraft, or 8 years of production, the analysts said. Also underpinning the bullish forecasts are battery issues with the Boeing 787 being resolved and the success of new Boeing and Airbus models at the Paris Air Show in June, they said.

The new planes sport wider bodies and therefore require more aluminum, with even regional jets following the trend toward increased size, Davenport analysts said. And while some new models may be more composite- and titanium-intensive, they also contain significant amounts of aluminum plate because of their bigger size, they said.

In addition, aluminum-lithium alloys offer an alternative lightweighting material to composites, which are costly and difficult to fabricate, the analysts said. While expense for aluminum-lithium alloys—about $50 per pound versus $3 to $5 per pound for standard aerospace alloys—is an issue, the alloys offer weight reduction of up to 25 percent compared with conventional 2000- and 7000-series aluminum alloys, they said.

The expected gains in aerospace aluminum consumption should help aluminum producers such as Constellium NV, Paris; Kaiser Aluminum Corp., Foothill Ranch, Calif.; and Alcoa Inc., Pittsburgh, O’Carroll and Ockerman said.

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