Though rising import levels challenge producers, the nearly decade-long growth in aluminum consumption shows no sign of abating.
For the eighth consecutive year, aluminum demand has been on the upswing. Supply of the material, in contrast, is slightly more challenged. Increased imports and complaints about continued Chinese oversupply are major concerns for the production industry, with trade action providing some relief.
In 2016, the aluminum market grew 2.5 percent. Preliminary data indicates growth of 4.1 percent in the first half of 2017 in the United States and Canada, reports the Aluminum Association, Arlington, Va. Association spokesman Matt Meenan says demand is returning to the prerecession peak of 2005-06.
“This is a very healthy growth rate for a mature market,” says John Mothersole, director of research for IHS Markit’s pricing and purchasing service.
Aluminum’s strong present is backed by projections of greater fortunes to come. Alcoa Corp. forecasts North American growth of between 4.75 and 5.25 percent, though President and CEO Roy Harvey says that additional consumption is being offset by Chinese production increases. “China has significant work to do to bring its market back into balance, although it has already announced and taken some action to eliminate its overcapacity,” he said during the company’s most recent quarterly conference call.
The growth in demand came in the face of an inventory overhang, which put downward pressure on the market. Service centers ended 2016 with approximately 3.5 months of supply, according to MSCI data, which they’ve shaved to 2.6 months through August. “Currently, stock levels are much better balanced with demand,” says Rosemary Smith, commodity manager for flat-rolled products and aerospace extrusions for TW Metals Inc., Exton, Pa.
Driving the growth is automotive body sheet, a segment that could triple in size over the next 10 years. The continued push toward lightweighting of the automotive segment will propel aluminum shipments, says Mike Becker, corporate project manager for Kloeckner Metals Corp., Roswell, Ga.
Auto growth isn’t just benefiting the sheet and plate markets. Extruded product shipments increased 2.1 percent through the first half of the year as well.
“Automotive is unquestionably the growth market for aluminum over the next decade,” says Doug Richman, vice president of engineering and technology for Kaiser Aluminum Corp., Foothill Ranch, Calif., and the chairman of the Aluminum Association’s Automotive Transportation Group.
The need to meet government requirements for automotive OEMs delivers a strong incentive for lightweighting and the increased use of aluminum in vehicles. However, that push appeared to slow down a bit in 2016. “I believe that the flat-rolled aluminum producers are a little disappointed by the rate of new announcements for aluminum-intensive vehicles following the Ford F-150 pickup, with more incremental changes, largely for closures, as opposed to wholesale vehicle structures,” Mothersole says.
While aluminum use in the overall transportation market has grown by about 115 percent since the bottom of the economic downturn, it increased just 1 percent last year, according to Ryan Olsen, the Aluminum Association’s vice president of business information and statistics. The sector includes not just automotive, but heavy duty trucks and semi-trailers. That segment recently completed a re-fleeting cycle, pulling the overall transportation market down last year. Olsen says aluminum use for automotive was up 3.2 percent year on year in 2016.
Aluminum’s continued gains will have to come in the face of an automotive market in decline. North American auto build rates are looking at a potential 7.3 percent decline in 2017 to 16.5 million units. Offsetting that slide is a change in mix more favorable to aluminum, says Ganesh Panneer, vice president of automotive-North America for Atlanta-based Novelis Inc. With persistently low gas prices, consumers have returned to a greater preference for sport utility vehicles and pickup trucks. “This is where a lot of aluminum gets used today,” he explains.
Also, recent hurricane activity could further lift demand in the automotive market, given that between 500,000 and 1 million vehicles were damaged during Hurricane Harvey alone, Smith says.
Richman says the big push has been the continued introduction of new automotive applications for aluminum in virtually all product forms, including castings, extrusions and flat-rolled sheet. He says all indications are the pace will continue, driven by needs for vehicle efficiency, lower emissions, improved drivability and customer demand for higher performance levels in their vehicles.
Aluminum industry participants express little concern about the upcoming mid-term review of the proposed 2025 fuel-efficiency standards in April 2018. “Obviously the fuel-efficiency and emissions regulations are encouraging the continued use of lightweight materials, such as aluminum, but we also think there is a lot of consumer demand for that as well,” Meenan says. Richman says rather than an increase in aluminum-intensive vehicles, the growing global trend is for a multi-material solution, affording opportunities for greater use of aluminum throughout the auto body structure.
The most recent study by automotive analysis company Ducker Worldwide LLC, Troy, Mich., on aluminum content in North American light vehicles supports that position. In the study commissioned by the Aluminum Association, Ducker predicts that once new fuel-efficiency mandates go into effect between 2025 and 2028, the average aluminum content will increase to 565 pounds per vehicle. That is up from the 466 pounds in the 2020 models and a leap from the 397 pounds in the average vehicle in 2015. The forecast also represents an increase from the 547 pounds per vehicle Ducker projected in its 2014 study.
Altogether, Ducker forecasts aluminum will represent 16 percent of the average vehicle curb weight by 2025, compared with 13 percent in 2020 and 10 percent in 2015.
The effects will not be uniform. The content will vary by vehicle, with greater need for mass reduction in larger vehicles, such as pickup trucks, SUVs and crossovers, says Abey Abraham, Ducker’s managing director of automotive and materials. The prediction is based in part on the assumption of a greater push for multi-material vehicles, compared with a single-material solution, a possibility aided by new joining technologies.
He says the largest area of growth between now and 2020 is for aluminum sheet for closures, such as hoods and doors. Extrusion use in bumper beams in crash managements systems will also be a significant gainer. Between 2021 and 2028 these trends will continue, but there will also be more sheet used in the body in white, extrusion use in structural applications and castings use in such applications as sub-frames, cradles and vehicle longitudinals.
Also, the expected growth of electric vehicles and hybrids will be a minor plus for aluminum, since these vehicles tend to have greater aluminum content than conventional vehicles, both to compensate for the weight of the battery and to extend the range of the vehicle between chargings. However, the segment is not expected to experience growth between now and 2028, remaining below 10 percent of all sales.
Meanwhile, there will also be shifts in other competitive materials, Abraham notes. While steel is expected to fall from 2,019 pounds per vehicle to about 1,676 per vehicle by 2028, that is largely in mild steel, as advanced high-strength steel use is expected to grow from 275 pounds per vehicle to more than 483 pounds. Also, magnesium use is expected to increase from 5 to 27 pounds per vehicle and composites up from only 1 pound now to 21.
To meet the increased aluminum demand, Richman says the U.S. industry is planning to bring on about 3 billion pounds per year of product capacity by 2028. This includes plans by Braidy Industries Inc. to begin construction of a 370,000-ton greenfield rolling mill in Greenup County, Ky., early in 2018. Rio Tinto Plc is considering expanding its North American primary aluminum capacity to help meet the auto industry’s needs. Novelis, Arconic and other major sheet producers have recently expanded capacity, as have a number of extrusion suppliers. Despite this, Panneer says the balance of supply and demand will get a little tight between 2021 and 2022, and that further production capacity will likely be necessary to meet the anticipated growth through 2028. “We are in touch with our auto customers in advance of that to make sure that the necessary capacity comes online as demand picks up,” he says.
Among other end markets, building and construction has seen decent but not brisk growth, particularly for extrusions. Olsen says aluminum grew 3.5 percent in 2016 through use in windows, doors and residential siding last year. Slightly lower growth of 2-3 percent is forecast this year, says Beatriz Landa, Novelis’ vice president of specialties-North America.
Such gains are consistent with the overall strength of the economy. “Going forward it should continue to move up at the same rate of growth. Construction demand, however, could pick up further in the wake of the hurricanes,” Smith says.
Cans and packaging, the other major aluminum market, is also seeing a modest increase, largely driven by demand from the beer industry. There has been some growth in other beverages such as sparkling water, iced tea and energy drinks, as aluminum has made some inroads against glass, Meenan says.
Aluminum distribution demand has also been good, Kloeckner’s Becker says, with inventories being largely in line with demand. Smith agrees, claiming that while service centers aren’t being overly cautious about their buys, they are looking to buy smartly. She says this comes as domestic supply has been tightening with aluminum plate lead times stretching out to 10-18 weeks from 6-8 weeks last year due to gains in the auto sector.
“Where the aluminum industry is being challenged is on the supply side,” Becker says, noting the gains being made by imports. “A lot of that is for ingot, but we are starting to see it on the mill product side as well.”
Much of the blame has been put upon China. “We can’t compete with a country like China, where more than a decade of government subsidies led to irrational non-market incentives for companies to produce metal that the world does not need,” Scepter Inc. President and Aluminum Association Chairman Garney Scott said during a June press briefing. He said Chinese overcapacity has created a global glut of aluminum, which has depressed prices and led to the curtailment or closure of eight U.S. smelters since 2014.
However, Mothersole says the recent rise of LME aluminum prices to over $2,100 per ton is not just because of greater speculator investment in the base metals complex, but indications that China is beginning to exercise some discipline, cutting some of its production to address environmental concerns.
China has also been the target of some trade action. This includes the well-publicized Section 232, which might not be acted upon until early next year, and an aluminum foil trade case. “We were quite pleased with the preliminary determination on countervailing duties,” Meenan says of the foil case. The U.S. Commerce Department set preliminary duty margins of between 16.56 percent and 80.97 percent on Chinese foil imports on Aug. 8. The preliminary anti-dumping determination is expected in early October.
In July, aluminum extrusions were handed a victory with the Commerce Department’s final determination that heat-treated 5050-grade aluminum alloy from China was covered under existing anti-dumping and countervailing duties stemming from its 2010 trade case.
Section 232 is seen as another way to address Chinese overcapacity. At the same time, “We believe that any of our trading partners who are operating appropriately and playing by the rules ought to be exempt,” Meenan says.
Overall, 2017 has been and will continue to be a good, healthy year for aluminum, Mothersole says. “2018 is likely to be more of the same with about 2.5 percent year-on-year growth – maybe more if the government provides an economic stimulus.”