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Aluminum is trained on planes, automobiles for 2016

Nov 23, 2015 | 02:42 PM | Fastmarkets AMM staff

Tags  Aluminum, Boeing, Ford, Aleris, Alcoa Inc., Constellium NV, Novelis Inc., Kobe Aluminum Sean M. Stack

Whether it’s on the roads or in the skies, there could still be some forward momentum for aluminum come 2016.

Whether it’s on the roads or in the skies, there could still be some forward momentum for aluminum come 2016.

North America will likely need nearly 8,000 new airplanes valued at $940 billion over the next 20 years due to the expansion of low-cost carriers and the replacement of aging fleets, according to Boeing Co.

“Owing to network carrier capacity discipline, we think that the domestic U.S. market is ripe for even higher growth than previously forecast,” Boeing said in its latest market outlook. The U.S. airline industry is riding a five-year wave of profitability, “all the more striking by the fact that it comes after a decade of massive losses.”

Chicago-based Boeing said that 64 percent of the forecast 7,890 new airplanes will be single-aisle planes.

Single-aisle aircraft, like the next-generation Boeing 737, use more aluminum compared with wide-body planes like the 787, which are made up mostly of carbon fiber composites and titanium, although Boeing has said it may rely more on composites and titanium in the future

There is still room for aluminum industry players to enter the automotive sector despite competition from a wave of expansions set to come online in 2017, a top Aleris Corp. executive told investors during a conference call.

“We believe that there is room for additional expansion,” Aleris president and chief executive officer Sean M. Stack said during a Nov. 3 earnings call. “I think everybody is being fairly judicious in terms of that capacity.” 

Alcoa Inc., Constellium NV, Novelis Inc. and Kobe Aluminum Automotive Products LLC have all invested in projects that will compete with  the expansion under way at  Aleris’ Lewisport, Ky., facility, which is slated to come online in 2016-17.

“When we announced the (Lewisport) investment a year ago, we said ‘this is not a build-it and they will come’ strategy—the capacity is backed by customer commitments,” Stack said, declining to reveal which original equipment manufacturers (OEMs) are contracted to source material from Lewisport. “Global OEM customers are probably more worried about our ability to supply material over the long term vs. where their demand is, so I think the market is in a very good position from a supply-and-demand standpoint.” Stack also cited the possibility of additional OEMs, such as Chevrolet and Toyota Motor Sales USA Inc., announcing new aluminum-intensive vehicles in 2017, similar to the launch of Ford Motor Co.’s aluminum-intensive F-150 pickup truck.

“We’re probably a little bit too early in the game,” he said. “Each of the OEMs have relative strategies on lightweighting and relative strategies on when they make those strategies known to the public. That’s more up to them more than it is to us. ... We’re obviously there to help them when that time comes.”

A return to full inventory levels for Ford Motor Co.’s aluminum-intensive F-150 pickup truck was cited by company executives as the primary driver behind the automaker’s strong North American performance in the third quarter.

“We’re back with the F-150 (to) full availability,” Bob Shanks, Ford executive vice president and chief financial officer, said during an Oct. 27 earnings conference call. “We’re back to the inventories we like to see.”

Dearborn, Mich.-based Ford previously forecast that inventories of the aluminum-intensive truck would return to full levels by the end of the third quarter, eliminating a lag in availability caused by production issues at the company’s Dearborn and Kansas City plants.

Ford also revised its forecast for the number of new vehicles sold in North America in 2015 to 17.7 million, up from earlier projections of 17 million to 17.5 million vehicles.

“We would characterize the U.S. industry as healthy, and barring any shock we expect it to stay that way for the next few years,” Mark Fields, Ford president and chief executive officer, told investors during the conference call.

The news on the ground this fall was not as encouraging for aluminum. Declining service center shipments in September partly reflected hesitation among buyers amid falling prices, but at least one analyst sees a brighter end to the year.

Aluminum shipments by U.S. service centers totaled 130,000 tons in September, off 1.4 percent from 131,800 tons in August and 2.8 percent below 133,700 tons a year ago. Inventories totaled 400,100 tons (3.1 months’ supply) at the end of September, up 0.9 percent from 396,600 tons (3.0 months’ supply) a month earlier but down 0.8 percent from 403,400 tons (3.0 months’ supply) a year ago.

Canadian service centers’ aluminum shipments totaled 14,300 tons in September, up 5.9 percent from 13,500 tons the previous month but down 0.2 percent from 14,400 tons a year earlier. Inventories of 42,400 tons (3.0 months’ supply) were unchanged from August but were 4.9 percent higher than 40,400 tons (2.8 months’ supply) last year.

“We attribute some of the shipment weakness to end-customer hesitancy as some buyers may have been reluctant to place orders with pricing falling through September,” Evan L. Kurtz, an analyst at New York-based Morgan Stanley Equity Research, said in a research note. But “the current negative trend will ultimately be broken by lower imports and a rebound in scrap pricing late in the year.”

The U.S. Department of Commerce is paying close attention to the effects of foreign imports on the North American aluminum market, with the new Trans-Pacific Partnership (TPP) being touted as a means to level the playing field.

“We can’t move forward with many of our national goals without aluminum,” Marcus Jadotte, assistant secretary of commerce for industry and analysis at the International Trade Administration (ITA), told attendees at the Aluminum Association’s annual fall meeting in Nashville, Tenn., Oct. 21.

“We have to get this right,” said Jadotte. “From the standpoint of the administration, that means doing everything that we can to support (the) industry. We all know that aluminum is a critical sector of our economy and critical to helping the (United States) advance our commercial, energy and strategic interests now and into the future.”

The TPP agreement will allow U.S. manufacturers to export more goods without duties and taxes, which will help to ensure the long-term development of American industry, he said.

“Together, these countries represent 40 percent of global (gross domestic product),” Jadotte said of the 11 countries that have signed the deal along with the United States. “That makes TPP the largest free-trade agreement in history. The agreement will eliminate 18,000 taxes various countries put on ‘Made in America’ products and will set high standards for doing business across the region.”

Jadotte characterized the agreement, in the words of President Obama, as “setting the rules of the road for global trade in the 21st century.”

The ITA is focusing its efforts on the points of origin for imports into the United States in order to penalize exporters for mislabeling the origin of products to avoid duties and taxes, he added.

China is expected to curtail more of its high-cost aluminum capacity in the next two years, with 76 percent of Chinese aluminum production being coal-powered, Paul Williams, manager of London-based research firm CRU Group, said during a separate presentation Oct. 20. Despite this forecast, rampant production in the Asian nation is still expected to help fuel a Chinese surplus of 900,000 tonnes of aluminum in 2016, with capacity growing due to lower-cost facilities coming online.


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