CORAL GABLES, Fla. Securing metalwhether billet, prime or scrapremains challenging due to stock financing deals and tight credit markets, one executive said.
That reduced metal availability has also led to higher prices and premiums for both aluminum consumers and their downstream customers, Bonnell Aluminum Inc. marketing manager Guy Charpentier said.
And no immediate relief is expected from new London Metal Exchange rules and a pullback in quantitative easing, he said.
The market dynamics have changed, and we have to consider other alternatives, Charpentier said at the Aluminum Extruders Councils (AECs) annual meeting and leadership conference in Coral Gables, Fla.
Those alternatives include consumers acting to reduce all possible exposure to spot purchases, he said, but acknowledged that doing soeven through flexible minimum-maximum volume clauses in supply agreementsremains difficult.
Another possible solution might be to extend supply sources, including importing billet from countries in the Middle East, Charpentier said. Even if it means a small percentage of your requirements, such a diversification makes sense especially in mitigating risk.
While the current market might be skewed by factors other than supply and demand, it will ultimately return to an equilibrium based on those fundamentals, he predicted. The question is when.
Turning to end markets, Charpentier said nonresidential construction would grow roughly in line with gross domestic product in 2014, but certain sectorssuch as new office constructionmight lag due to tepid job creation, Charpentier said.
Residential construction, while improving, is well off peak levels, which means less demand for consumer durables such as new appliances, he said, noting that a lack of skilled workers in even the current anemic recovery is also dragging on the construction market.
Other sectors, including the electrical market and machinery and equipment, are also seeing flat growth, Charpentier said. Before machinery and equipment improves, for example, sentiment among chief executives and small businesses must get better as well, he said.
One bright spot for extrusions has been the transportation sector, where automotive demand has been a game changer, he said. Thank God for automotive. If it werent for automotive, I dont know where we would be in the economic cycle were in.
The industry will add about 15 million to 16 million pounds per year of new demand for aluminum extrusions for roughly the next decade as automakers use more of the light metal, Charpentier said, pointing to Dearborn, Mich.-based Ford Motor Co.s decision to make its new F-150 pickup with an aluminum body (amm.com, Jan. 13).
Several other manufacturers will undoubtedly follow the F-150, Charpentier said.
On the sidelines of the conference, he declined to say which vehicle programs Bonnell Aluminum might be participating in, citing confidentiality agreements. The Newnan, Ga.-based company is a subsidiary of Tredegar Corp., Richmond, Va.
But while automotive demand has bolstered demand for aluminum extrusions, auto inventories have been creeping up quite significantly and could become concerning to suppliers to the automotive sector, Charpentier said.