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July 2014
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Evolution Points to Revolution for Automotive Aluminum

By Dan Markham, Senior Editor

After four decades of expectations, is aluminum finally on track to become the material of choice among carmakers?

For the past 40 years, aluminum has enjoyed slow, steady growth as an automotive material. But that measured approach is giving way to more rapid development, said Jack Clark, senior vice president and chief technical officer for aluminum rolling specialist Novelis. "We've been talking for a long time about the aluminum-intensive vehicle, but it's only been in the last four years that auto companies [have committed]. There are significant capital investments being undertaken now, and it's happening at a rate none of us has seen before," Clark told the audience at the 7th Annual Harbor Aluminum Outlook Summit last month in Chicago.

Clark's outlook has some support behind it. On the same day he spoke to the conference attendees, global consulting and research firm Ducker Worldwide released its "2015 North American Light Vehicle Aluminum Content Study," predicting that more than 75 percent of all new pickup trucks will be aluminum-bodied by 2025.

Ducker surveyed all major automakers and reports that Ford, General Motors and Fiat Chrysler will become the biggest users of aluminum sheet in the next decade. The number of vehicles with complete aluminum body structures will reach 18 percent of North American production, from less than 1 percent today, the study forecasts. Vehicle segments revealed as emerging aluminum content leaders are pickup trucks, sport-utility vehicles and both mid-size and full-size sedans.

Every leading automaker will have numerous aluminum body and closure programs by 2025. As the material mix for body and closure parts continues to change, use of aluminum sheet for vehicle bodies will increase to 4 billion pounds by 2025, from just 200 million pounds in 2012, Ducker claims.

Additional findings from the study, which was commissioned by the Aluminum Association's Aluminum Transportation Group, include the following:
• For 2015, pickup trucks will contain the most aluminum at 548.9 pounds per vehicle, followed closely by E segment sedans at 546.9 pounds, SUVs at 410.3 pounds and minivans at 396.5 pounds.
• The average aluminum content in 2015 will be up 44 pounds per vehicle or 13 percent over 2012.
• Total North American light vehicle aluminum consumption will be up 28 percent in 2015 over 2012.
• By 2025, 26.6 percent of all the body and closure parts for light vehicles in North America will be made of aluminum.
• Total North American aluminum content in 2025 will be 10 billion pounds.
• Globally, light vehicle aluminum content will approach 35 billion pounds by 2025, making light vehicles the most important global market for aluminum.

While Clark is confident in the automakers' desire to increase their use of aluminum, the ability of the aluminum industry to produce the necessary supply is of some concern. The availability of rolling slabs is one issue, he said. "It's not whether we can get the metal units, but if we can get it in the proper form we need to make a coil of aluminum."

Novelis and fellow aluminum maker Alcoa, most notably, have launched major investments to increase their rolling capacity. Whether that will be sufficient for future demand remains uncertain, Clark said. He foresees a rebalancing of supply as some of the current capacity for can sheet is redirected to meet the needs of the auto industry.

Another remaining question is how quickly the rest of the world outside North America and Europe will adopt stricter gas mileage and CO2 emission standards for their cars and trucks. That will determine the extent to which the aluminum supply chain is stretched. Vehicle lightweighting is likely to become a global trend, experts say, rather than one focused solely on the Western world.

While the Chinese market is populated with smaller cars and thus the business case for an all-aluminum body isn’t as strong, there are still factors working in aluminum's favor, Clark said. The Chinese market is heavily dependent on cars imported from Europe and North America, which have gone through the lightweighting process. Additionally, the air quality in China is so poor that emissions are a much greater concern than in other developing countries.

Aluminum and steel have been fighting a pitched battle for market share in the automotive world as regulators in the U.S. and other countries have set higher fuel efficiency standards. The steel industry has countered with the development of lighter but higher-strength steels to stave off aluminum's gains. But the aluminum industry has hardly been standing still, notes Clark.

"Our engineers and metallurgists are working closely with our customers’ design teams at the early stages to help ensure the next generation of vehicles is built to maximize the attributes of aluminum," he said. “Looking a little further out, we are exploring the potential for the next generation of very-high-strength automotive alloys based on 7000 series alloys used in the aerospace industry. This would provide a new standard in automotive aluminum alloy strength that would exceed even many of the high-strength steels."

Aerospace ascending
In contrast to its market share gains over steel on the automotive side, its aluminum's share of the aerospace market that is threatened by lighter, but more expensive, composite materials.

Ford’s F150 gained much notoriety for being the first aluminum-bodied pickup truck. The F150 of the sky is the Boeing 787, a new passenger jet designed with an unprecedented level of composite parts. Even with this intruder on aluminum’s space, the nonferrous metal will maintain a substantial share of the aerospace business for decades to come, said Darren Hulst, market analyst for Boeing, Chicago.

Over the next 20 years, the aerospace industry is expected to add more than 35,000 new commercial planes to its fleet, or about 1,750 annually through 2035. Of those new builds, two-thirds are expected to be aluminum-intensive planes.

Three key factors are driving the expected boom in aerospace, Hulst said: growth of emerging economies such as China; a business focus on low-cost carriers flying into more locations; and a healthy replacement market that will continually turn over older planes for more fuel-efficient models.

None of this is terribly new, he said. Over the past 30 years, passenger demand for air travel has grown about 5 percent per year, a trend almost nothing can deter.

"Even with the combination of a recession, a war and 9/11, we were back at the 5 percent trend line within three years. Aviation is just important to driving economic growth as a whole."

Asia is disproportionately responsible for new passenger traffic. Each year, an additional 100 million air passengers enter the Asian market. Asia represents about half of the total global growth rate.

Total growth in passenger miles exceeded the long-term average in 2013, and this year's growth is expected to come in around 6 percent. "So there's a continued positive outlook as far as traffic growth, and ultimately the airplanes that requires," Hulst said.

Primary demand to climb
Global consumption of primary aluminum is expected to grow at a 5.8 percent annual rate, reaching a total of 72.5 million tons by 2020, said Walid Al-Attar, chief marketing officer for Emirates Global Aluminum, UAE. North America will share in the global growth, though at a slightly slower rate of 3.5 percent. At 7.3 million tons, North America will represent about 10 percent of the world market in the next five years.

Major drivers of aluminum’s global gains include increases in the working age population, incomes, urbanization, industrialization in the emerging world, rising per capita income in the developed world, and market share growth in key markets. The primary question for the aluminum industry is whether its production capacity can keep pace with the future demand.

Today, five regions of the world already face a deficit in primary aluminum production, including North America. The North American deficit is expected to grow from its current shortage of 1.1 million tons to a 2.4-million-ton hole by 2017. Latin America is expected to follow a similar pattern, while other regions’ deficits hold firm.

Working against the needed capacity expansions is the relatively low price of aluminum, recently listed on the LME at around $1,750 per ton. That figure is well below the long-term equilibrium price of the material--the level necessary to support construction of new production facilities, Al-Attar said. The equilibrium price, currently around $2,375 per ton, is considered by analysts to be the floor necessary to incentivize construction of new smelters. LME prices have stayed below the equilibrium price since 2009. "The business case for building additional supply doesn't exist today," Al-Attar added.

On the other hand, while the base price is not high enough to drive the necessary cap ex, another element of the price could serve as a drag on the market. Historically, the Ingot Midwest Premium has represented 3-6 percent of the LME aluminum cash price. That premium has grown significantly in the past three years, from 11 percent in 2012 to 22 percent today. "This is a serious challenge for the industry as a whole, particularly to the downstream customer who doesn’t have formulas for the premiums. This will impact the profitability and long-term sustainability of these companies," he said.
 

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