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Alcoa bullish on aero, auto demand

Keywords: Tags  Alcoa, Klaus Kleinfeld, aerospace, automotive, Boeing, Airbus, Ford Motor, F-150 Novelis

CHICAGO — Alcoa Inc. doesn’t expect cyclicality in the aerospace market for the next decade and is more concerned with having enough capacity to meet automotive demand than about overcapacity.

The Pittsburgh-based aluminum producer’s bullishness about aerospace comes as orders for large commercial aircraft are up, with backlogs at Chicago-based Boeing Co. and Toulouse, France-based Airbus SAS standing at 10,675 aircraft, Alcoa chairman and chief executive officer Klaus Kleinfeld said during a conference call with analysts following the release of earnings results April 8, noting that the figure represents more than eight years worth of orders.

"I would say that at least for the next six to 10 years, the cyclicality is probably not going to happen," he said, noting that average prices for aircraft are also on the rise.

A rebound in regional jet demand also is bolstering the sector, with backlogs standing at 1,200 aircraft, or roughly five years worth of orders, Kleinfeld said. Growing middle classes in Asia and the Persian Gulf are fueling the surge in aerospace demand, he said, noting that big air shows in those emerging markets have seen "fantastic order volumes."

A "very temporary" inventory overhang in jet engine parts has been eliminated as a result, with another in aerospace structural plate becoming so small "you don’t even see it in the numbers anymore," he said.

The aerospace structural plate market last year was mired in an inventory overhang (, Oct. 9), and that could spill over into 2015, Kleinfeld said.

Just as he brushed aside concerns about an aerospace inventory glut, Kleinfeld also pushed aside questions about potential overcapacity in the automotive sector.

"I am not concerned about the capacity situation in North America ... in terms of overcapacity," he said. "I think most folks are rather concerned about not enough capacity to cater to growing demand."

That’s because more cars and trucks produced in North America are expected to increase aluminum content as automakers look to slash weight and boost fuel economy, Kleinfeld said.

"What you are seeing ... is aluminum substituting (for) other materials—mainly steel—in cars," he said. "And you will see a substantial shift, I’m convinced, to lightweighting across the board."

Dearborn, Mich.-based Ford Motor Co. made about 700,000 F-150 pickups in 2013, Kleinfeld said, underscoring the magnitude of the trend. In addition, passenger vehicles are on average 11.4 years old compared with a historic norm of 9.4 years, meaning that the industry should benefit from pent-up demand. "We believe that we are only seeing the start here," he said. "That’s why we’re building our capacities here."

Alcoa’s $300-million Davenport, Iowa, rolling mill is "fully committed," its Alcoa, Tenn., facility is almost booked and the same is true of its joint venture with Saudi Arabian Mining Co. (Ma’aden), he said.

Aluminum body sheet content per vehicle is expected to jump to 136 pounds in 2025 from 12 pounds in 2012, Alcoa said, citing statistics from Troy, Mich.-based market research firm Ducker Worldwide LLC. As automotive sheet demand surges, revenue from the product should climb 44.1 percent to $330 million in 2014 from $229 million in 2013 before spiking nearly sixfold to $1.3 billion in 2018, the company said.

Those rosy predictions come as other aluminum producers and fabricators also have either added or announced plans to boost automotive aluminum sheet capacity in the United States, including Atlanta-based Novelis Inc. (, Oct. 25), Paris-based Constellium NV (, Jan. 23) and Muscle Shoals, Ala.-based Wise Metals Group LLC (, Nov. 6).

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