Shifting Materials Mix Starts Race to Invest
The race is on to meet the new federal fuel economy standards. The material that wins the biggest share of the automotive market tomorrow may well be the industry that invests the most today.
By Myra Pinkham, Contributing Editor
Automakers are committing millions to R&D and new plants and equipment as they seek ways to meet stricter federal fuel economy standards that call for their U.S. fleets to average 54.5 miles per gallon by 2025. And it’s not just the automotive OEMs that are innovating. Companies throughout the supply chain, including metals producers, toll processors, parts suppliers and service centers, also are investing heavily to handle the next generation of automotive materials.
Weighing on the supply chain is the question of capacity: will makers of aluminum and the new high-strength steel alloys be able to produce enough material to meet the automakers’ 2025 requirements? And will processors and parts suppliers have the proper equipment in place to work with these new materials?
Faced with the challenge of doubling the fuel efficiency of their U.S. fleets in the next decade, OEMs invested a total of $18.2 billion in North America last year including $10.5 billion in the United States, $7.0 billion in Mexico and the rest in Canada, says Bernard Swiecki, senior product manager for the Ann Arbor, Mich.-based Center for Automotive Research (see sidebar).
The primary way automakers will achieve their fuel efficiency goals is through new engine and transmission technologies. An important secondary component is the use of new, lighter materials to reduce the weight of each vehicle, says Jody Hall, vice president, automotive market, for the Steel Market Development Institute in Washington and a former General Motors executive.
It is for this reason that a battle for market share among different automotive materials has escalated in the past few years. “Steelmakers say the solution is high-strength steel. Aluminum makers say the solution is aluminum. Composite makers say they can build cars completely out of plastics. Realistically, all those materials are going to have to learn to get along on the same vehicle,” Swiecki says.
That poses numerous engineering challenges, says Dave Andrea, vice president of industry analysis and economics for the Original Equipment Suppliers Association in Troy, Mich. How do automakers design and manufacture future products with the largest amount of dissimilar materials in history?
North American vehicles already contain mild and high-strength carbon steels, as well as aluminum, stainless, magnesium, plastics, carbon fiber and even titanium. What is likely to happen as the 2025 model year approaches is that the per-vehicle content of mild steels will decline and the amount of aluminum, advanced high-strength steels (AHSS) and ultra high-strength steels (UHSS) will increase, says Dick Schultz, managing director of the materials practice at Ducker Worldwide, Troy, Mich. By that time, a third generation of AHSS alloys with improved formability and workability will also be making their way into new vehicles.
The biggest constraint for aluminum is heat-treating capacity, says Lloyd O’Carroll, research analyst for Northcoast Research in Cleveland. Several producers have already added new capacity to address that issue, and further investments are likely to be announced, he adds.
Atlanta-based Novelis, Inc., is spending $400 million to retool its Oswego, N.Y., rolling mill, which previously produced aluminum sheet for the can and specialties markets, so that it can make automotive sheet. The upgrade includes the addition of three continuous annealing heat-treating lines, as well as new receiving and recycling capabilities for the automotive scrap generated at the facility. It will also incorporate a closed loop recycling system using a “universal trailer” that enables the company to ship new coils to customers on the same trailer that carries scrap metal back to Novelis.
To ensure this does not compromise Oswego’s ability to meet the needs of its can sheet and specialties customers, Novelis is taking advantage of its global footprint by bringing in products from its South Korean operations to help support its customers’ requirements in North America, says Thomas Boney, Novelis’ vice president-automotive.
Alcoa, Inc., also has made a number of investments to increase its automotive capacity, including its new “game-changing” Micromill continuous casting and rolling technology, says Ray Kilmer, executive vice president and chief technology officer. Micromill is not only capable of producing aluminum automotive alloys that are 40 percent more formable and 30 percent stronger, but it also occupies a quarter of the footprint of traditional manufacturing processes and can transform molten metal into a full coil in just 20 minutes, Alcoa claims. This rapid solidification rate creates a stronger, lighter, more formable product that opens the door to new uses for aluminum, such as car door inners, Kilmer adds.
Last year, Alcoa finished a $300 million expansion at its Davenport, Iowa, facility, which is now dedicated to supplying aluminum sheet products to the automotive market. By mid-year, it will complete a $275 million expansion of its Alcoa, Tenn., facility to convert some of the plant’s can sheet capacity to high-strength aluminum for automotive.
Mike Keown, vice president of supply chain and marketing for Cleveland-based Aleris, says his company is investing in the talent and technology to ensure it is ready to meet the requirements of automotive manufacturers. Aleris recently invested $70 million to create a dedicated automotive facility in Duffel, Belgium, and is currently in the midst of a $350 million project to equip its Lewisport, Ky., facility with additional heat-treating and finishing capabilities. The Lewisport upgrade includes a wide cold mill, two continuous annealing lines and an automotive innovation center that will enable the facility to produce wide aluminum auto body sheet.
Global aluminum supplier Constellium operates 23 manufacturing plants in Europe, North America and China. Constellium acquired Wise Metals, Muscle Shoals, Ala., in a $1.4 billion deal that closed in January. The acquisition of Wise, which claims to have the widest aluminum hot-strip mill in North America, gives Constellium immediate access to 450,000 metric tons of hot-mill capacity.
Constellium intends to invest up to $750 million by 2022 to increase Wise’s capacity to over 700,000 tons and build 200,000 tons of dedicated body-in-white finishing capacity to serve the rapidly growing automotive market.
While the footprint of aluminum companies serving the automotive industry must continue to evolve, Novelis’ Boney says he is confident the industry will meet the challenge. At the current pace, O’Carroll believes another round of aluminum sheet capacity expansions may be needed around 2020. “While there isn’t enough finishing capacity today to meet OEM needs long term,” Keown adds, “proposed projects coupled with current investments under way could bridge that gap.”
Similarly, on the steel side, producers of high-strength steel have been gearing up to meet the increased demand. “A lot of the AHSS capital expenditure is more about developing the capabilities to make thinner gauge and wider coils than about increasing raw steel capacity,” says Michael Beard, the marketing and strategy lead for the automotive solutions group at United States Steel Corp.
By developing these capabilities, as well as continuing work to bring third-generation AHSS to the market, steel could remain the dominant material for automotive applications, asserts David Anderson, senior director of SMDI’s automotive technical panel.
Led by ArcelorMittal, several U.S. steelmakers have developed new alloying technologies, including sophisticated heating and cooling techniques, that maintain AHSS grain structures and deliver the desired properties, says Christopher Plummer, managing director of Metal Strategies, Inc., West Chester, Pa. Mills are accomplishing this by installing a new generation of continuous annealing lines, each of which has about a 500,000-ton capacity and a cost of $350 million to $450 million.
The most recent such investment was in 2013 at the U.S. Steel/Kobe PRO-TEC Coating Co. joint venture in Leipsic, Ohio, which is already making some third-generation AHSS products for customer testing, Beard says. “We are very close to commercializing it and making it available for sale,” he says, although that product probably won’t find its way into new autos until the 2018 model year.
Plummer says the addition of one more advanced continuous annealing line to the market should give the domestic steel industry enough capacity to meet customer requirements for 2025. Likely to add one, or possibly even two, of these lines is AK Steel Corp., he adds. Prior to AK’s recent acquisition of Severstal North America’s Dearborn, Mich., facility, both AK Steel and Severstal reportedly were considering such lines.
Given that carmakers generally know three to five years in advance what materials will be required for their new vehicle platforms, both aluminum and steel producers say they will have ample time to make additional capital investments if needed.
Perhaps the larger question is whether other companies further down the supply chain—including service centers, toll processors, and Tier 1, 2 and 3 parts suppliers—will be ready to work with these new materials. Cutting, forming and fabricating high-strength steel and aluminum calls for specialized equipment. Many are reluctant to invest too much too fast, especially since the materials mix of the new vehicles is still uncertain.
Few toll processors have a “build it and they will come” attitude, says Gary Lecznar, business development director of Aluminum Blanking Co., Inc., Pontiac, Mich. In their very capital intensive business, tollers tend to upgrade their equipment only when absolutely needed.
Stampers and parts suppliers also are being cautious, says OESA’s Andrea. “No one wants to be locked into a certain technology or material that might not come about. They don’t want to be stranded with capacity they can’t make money with.” At the same time, he adds, they realize they can’t wait too long, as equipment lead times will stretch out as the 2025 deadline nears.
No doubt the volume of mild steel going into vehicles is on the decline. Thus companies are positioning themselves to handle other replacement materials. Many are gearing up to work with advanced high-strength steels. Others are moving toward aluminum. Some are even doing both.
Cleveland-based Ferragon Corp. is hedging its bets both ways, says its President Eduardo Gonzalez. “If you want to continue to service the automotive industry, I believe it is higher risk to not have both AHSS and aluminum processing capabilities,” he asserts. “I wouldn’t want to take the chance of choosing the wrong material.”
One big unknown is consumer preference. Auto companies will make the vehicles consumers wish to buy. “At the end of the day it is the consumers who will decide what cars will be produced with what materials,” Gonzalez says.
Ferragon started up its Autolum Processing Co. division in Wayne, Mich., two years ago, aimed at taking advantage of the anticipated pickup in aluminum processing volumes. On the steel side, the company acquired the Steel Rolling Holdings facility in Gibraltar, Mich., this February. The facility, which now operates as Ferrolux Metals Co.-Gibraltar, is in the process of installing a continuous annealing line.
Ferragon claims it will be the first processor with the ability to convert hot-rolled steel substrate to such AHSS steels as dual phase, transformation induced plasticity (TRIP), martensitic and quenching and partitioning (Q&P) steels with 580-1,500 MPa tensile strengths on a toll basis for its OEM, mill and service center customers. Part of an investment of nearly $100 million, the new line is expected to come online in third-quarter 2016.
Other companies are spending capital to get in the automotive aluminum sheet game, including fabricators, processors and service centers that may have handled just steel or perhaps aluminum for markets other than auto. In either case, they face a long learning curve, says Thomas Ewing, commercial director for specialties at Novelis. Aluminum producers are prepared to offer them a lot of support.
Specialty Metals Processing, Inc., Stow, Ohio, a specialty alloy, stainless steel, aluminum and titanium processor, is installing a new multi-stand polishing line aimed at not just the automotive market, but the aerospace and truck trailer sectors, as well, says Mark Milie, executive vice president of operations and technology.
“There is a certain mindset required to process aluminum,” says Laura Anderson, Aluminum Blanking’s president and chief executive officer. “You need to pay more attention to details and know what works and what doesn’t. Aluminum is more prone to damage than steel, and every defect will show up even after it is painted.” For that reason, she says, companies with the most experience processing aluminum have a distinct advantage.
Not all processors are willing to make a leap from steel to aluminum. “I’m still not sold on how aluminum will fit in with the automotive market, given that there are certain supply and reparability issues,” says Pete Adamski, general sales manager for Taylor Coil Processing, Lordstown, Ohio.
Adamski does not rule out aluminum at Taylor in the future, but in the meantime his company is upgrading its equipment for AHSS. Taylor is installing what he claims is the only slitter in North America with the sole intent of handling material with tensile strength as high as 1,750 MPa.
Like Taylor Coil Processing, Voss Industries is not looking to process aluminum at this time. It recently upgraded equipment at its Voss Clark facility in Jeffersonville, Ind., following a similar upgrade at Voss Taylor in Taylor, Mich. David Detzel, director of outside sales for Voss Taylor, says the latest upgrade doubled the horsepower of the facility’s line enabling it to process coils up to 76 inches wide at 0.300-inch thick.
Not all toll processors are so proactive, Gonzalez says. Although most are at least investigating their alternatives, some are waiting for more clarity in the market. “However, I think this change is inevitable, and I don’t like to post-
pone the inevitable.”