Post-Recession Outlook Positive
for Aluminum, Say Mill Execs
By Myra Pinkham, Contributing Editor
The U.S. aluminum market improved more last year than many had expected and this year may be even better, predicted Steven Demetriou, chairman and chief executive officer of Aleris International Inc., Beachwood, Ohio. Demetriou was part of a press roundtable at the Aluminum Association and Aluminum Extruders Council joint spring meeting in Fort Myers, Fla., in mid-April.
“Overall, it has been an excellent beginning of a recovery,” said Demetriou, current chairman of the Aluminum Association. He expressed some reticence about the questionable pace of growth for the next 12 to 18 months, “but once we get beyond 2011, and housing and some of the other lagging markets get back on track, we could see some pretty interesting years.”
The association board members admitted that some of the gains the aluminum market achieved in 2010, especially during the first three quarters, were due to inventory replenishment across the supply chain. “But going forward, we expect strong demand in most of our markets,” said Jean-Marc Germain, president of Atlanta-based Novelis Inc.’s North American operations and chairman of the Aluminum Association’s executive committee.
Several months of inventory building left service centers with 3.5 months of aluminum stocks on hand by the end of last year, prompting a correction. By late March, they had whittled them back down to 2.5 months of supply, according to Metals Service Center Institute data.
Keeping inventories lean is a common theme at all levels, said Demetriou, which means service centers and producers must become better supply chain managers. “Everyone learned their lesson during the recession and now recognizes that more effort needs to be put on productivity and efficient use of working capital.”
This emphasis on inventory management calls for greater communication between customers and suppliers, Germain said. “It involves more sharing of market forecasts and for us to talk the same language throughout the supply chain.”
Tom Brackmann, president of Nichols Aluminum, Davenport, Iowa, and vice chairman of the aluminum trade association, noted that his company has seen a dramatic recovery from the depths of the downturn, even though it is highly reliant on sales to the construction industry. “It is an odd scenario,” he said, given the continued weakness in both residential and nonresidential construction. “The underlying fundamentals do not seem to be driving some of the demand we are seeing.” While few statistics are available, some of the gain is likely from a pickup in home remodeling. New housing starts continue to be weak, but people appear to be investing in their current homes, he said.
Brackmann is not optimistic that Nichols will see the same growth rate this year. Some of last year’s growth was due to consumers who took advantage of energy and first-time-buyer tax credits “which didn’t create any new demand but simply moved demand forward from one quarter to another.” And until homebuilding numbers become “reasonable” once again, the nonresidential construction that usually follows will remain “awful,” he said.
In the meantime, reported the executives, other end uses for aluminum are gaining strength, including the automotive, aerospace and can sheet markets.
Automotive aluminum consumption is up both globally and domestically, Demetriou said, due to both the modest increase in the number of vehicles produced, as well as the amount of aluminum per vehicle, as automakers continue to seek ways to make cars and trucks lighter and more fuel-efficient. “Aluminum has been and will continue to be a major solution to achieve that goal,” he said.
Much of the push for better fuel efficiency is driven by the federal government, which has stepped up corporate average fuel economy requirements. While Germain admits that use of more high-strength steels could also help automakers meet the new CAFE standards, he maintains that more OEMs are looking at aluminum. “If you are just a little short of the CAFE requirements, using high-strength steels could work. But if there is a big gap, then aluminum needs to come into play,” he maintains.
The can sheet market is another success story for aluminum, Germain said, showing improvement last year for the first time since 2007 as beer microbreweries moved away from glass bottles to cans.
The executives voiced some concern about rising imports of low-cost rolled common alloy products, but the industry is not yet ready to support trade action. “Antidumping cases, in general, aren’t something that any industry takes on lightly without doing its homework first,” said Steve Larkin, the Aluminum Association’s president. “It would really have to be a situation with merit. It has to be something that widely impacts the industry and not just one or two companies.”
“We’re very committed to having a level playing field, and we’re not sure it is fully level right now. But at the same time, I don’t think [trade action] is at the top of our list of priorities,” Germain said. The industry doesn’t have enough facts to determine if the imports are fairly traded or not. “But it is something we will continue to look at,” Demetriou added.
The import surge could also be caused by a tightness of supply, with demand picking up faster than producers can restart capacity, noted the executives. It is unlikely that anyone will invest in a new rolling mill in the United States, however. “I think that a combination of continuous improvement, incremental capacity expansion, capital expenditures and product mix changes will put us in the position to meet the anticipated increase in demand,” Germain said. n