Two years of supply challenges and pricing run-ups may be giving way to a more traditional market for nonferrous products.
Aluminum’s wild ride of the past two years is not completely over, but there are signs the nonferrous market could soon return to a more normalized look.
As with many industrial metals, or industrial products of any kind, aluminum has been whipsawing since the pandemic, characterized by stunning lack of availability and cresting and cratering pricing. Those conditions are still being felt by the supply chain, though hope exists the extreme nature of the market is starting to abate.
In 2021, the primary concern of aluminum distributors was simply getting their hands on the material. “It came to a point where if you had access to metal, you could pretty much quote whatever price you wanted and you could sell it,” says Orlando Ferran, president of Almetco, San Juan, Puerto Rico. “That is very uncommon in our industry.”
He’s only slightly exaggerating about the conditions. “For service centers, 2021 for everybody was hand to mouth. If you could get it, you could get it out,” says Stephen Williamson, U.S. research manager, Aluminum for CRU.
“There was a lot of panic buying and things got pretty crazy, which is why we topped out where we did in aluminum,” says John McClatchey, vice president of sales and marketing for Atlanta-based SAF.
Availability improved over the first three quarters of 2022, but it still hasn’t returned to its pre-pandemic norms. Allocation remains in place from many of the mills, though lead times are coming in a bit on certain products.
“Where the market was on allocation a lot, for most products it’s softening to the point where if they haven’t gotten off it, they’re considering it,” says David Pace, president of Industrial Metal Supply, Los Angeles.
Ryerson’s Director of Supply Chain for the South Region David Beard has seen some improvement in a few areas. On coil and sheet, there is better avaiability of 3000 and 5052 in both mill production capacity and general depot inventories.
Some of that availability may be the result of a shift by U.S. producers. As automotive continues to struggle because of its own supply issues, some mills may be changing their mix to include more industrial-bound nonferrous product. That’s the take of Mike Keown, president of Commonwealth Rolled Products, Lewisport, Ky.
“When automotive, which is a sizable market, is down to these levels, mills have capacity. They’re going to start producing for other markets that they would have produced for automotive,” he says, noting that such a phenomenon adds another level of complexity to understanding the exact level of demand in the market. “Is it outright demand, inventory destocking or some of the mills that don’t automatically go after some of these markets doing so?”
Ferran, for his part, has not seen much movement on common alloy sheet, at least not from North American producers. “We are starting to see some more international availability. I have not bought American metal for some time now. A couple of the mills we have access to are booked solid,” says Ferran, whose company’s island status complicates buying, as it must pay American shipping rates to secure metal from the mainland.
SAF has a little of both. “We’re still getting solicited by domestic mills and there seems to be more solicitation coming from the European mills,” says McClatchey, whose company is exploring a new headquarters facility in the Atlanta area.
While availability of sheet products is starting to improve, the extrusion market is already there, Beard says. “Lead times have come in dramatically. Obviously, it’s mill and press dependent. But lead times for standard items are back to pre-pandemic levels.”
Williamson and CRU believe the supply of most nonferrous products will be even closer to balance in 2023, save one. “Heat-treat plate will be in high demand and likely still in allocation, especially in plate thicknesses ½ inch and heavier,” he says.
A few trends will drive the continued plate shortage, he says. First, aerospace demand is kicking into high gear, and plate plays a prominent role there. Additionally, it’s used as tooling and in jig fixtures in semiconductor production. “As these gigafactories are built, so too will follow demand for aluminum plate,” says Williamson.
Finally, the ongoing war in Ukraine is likely to bump defense spending, pulling more plate out of the market. “Plate is probably the outlier as far as supply is concerned. It’s still going to be in tight supply and on allocation,” he concludes.
While aerospace demand is on a strong uptick, the other major end markets for aluminum occupy various stages of strength. Most notably, automotive remains off.
“I know a lot of people want to call it a microchip shortage, but it’s more than just that. It’s suppliers having labor issues to wire harnesses to you name it. Supply issues that have slowed them up,” says Keown.
Williamson agrees. “Certainly automotive has continued to struggle to get back to the production volumes we had hoped to see for 2022,” he says. But there’s still some hope. “The automakers we’re talking to are expecting a better second half and a strong fourth quarter to salvage the year. Hopefully some of these semiconductors start to get through.”
While the short-term demand for auto is shaky, the long-term outlook is significantly better. The move from internal-combustion engines to electric-powered ones is the next big thing on the horizon.
“We’re looking at the ICE and EV balance and how much aluminum adoption there’s going to be there. We’re pretty bullish on that, though clearly steel is going to be a major player,” says Keown.
Over the past year or two, the auto conversation has shifted from lightweighting to ICE vs. EV, though that’s not likely to halt the ongoing pro-aluminum and steel-championing arguments being made from rival quarters.
Not by Williamson. “I encourage everyone to look at aluminum and steel as complementary materials. They’re going to co-exist in cars, trucks, airplanes. I’m trying to shift the dialogue away from competing as opposed to complementary and price; service and inherent characteristics of the materials will play out in the marketplace wherever the engineers decide their best fit.”
Another major consumer of aluminum flat products is can sheet, which remains on a strong upward trajectory, though the growth slowed somewhat in 2022 following massive gains in 2021. The reason for the increases in what is historically a rather stable market is easy to pinpoint.
“It was an interesting confluence of factors that really lifted beverage can demand. First and foremost, it’s millennial customers moving away from single-use plastic, recognizing the sustainability characteristics inherent in the aluminum beverage can,” Williamson says. COVID also played a role in the growth, as more products were consumed at home rather than in restaurants, where glass remains a major player.
The growth in demand for beverage packaging has put a strain on the industry, resulting in a deficit of domestic can sheet supply. The recent announcement by Steel Dynamics of its plan to construct a new aluminum flat-rolled mill (See sidebar) will affect that condition. “It’s going to be an interesting transition to see how domestic mills and import mills position themselves in what will be a fairly balanced market in can sheet,” Williamson says.
Beyond those three is the service center market, which serves as a bellwether for demand by servicing local fabricators, job shops and others. Service center buying from the mills was heavy in the first quarter, which has left distributors in a bit of a precarious position.
“Unfortunately, the market timing worked against them as they were buying when the LME and Midwest were spiking. What they’ve had to do in the second and third quarters is manage their inventories very carefully,” he says.
IMS is living that. “We’ve watched the LME fall quite a bit. That has its challenges when you’re selling high-cost material in a lower-cost market. Managing inventories and staying lean is obviously important,” says Pace, whose company expanded its operations to the Bay Area in August with the acquisition of Campbell Metal Supply.
Earlier this year, the LME peaked in the high $3,000s and the Midwest price was at 38 cents. Over the course of the second and third quarters, those numbers dropped to $2,400 and the mid-20-cent range.
Looking ahead, most executives are relatively optimistic about business conditions for the remainder of the year and into 2023, though there are concerns about the macroeconomic conditions and the response to them. Pace believes we’ve come close to talking ourselves into a recession.
Williamson says inflationary conditions, whether involving energy costs, logistics expenses or a byproduct of ongoing labor issues, will act as a headwind in the fourth quarter. In contrast, Ferran believes inflation fears are overstated, and is more concerned with any actions the Federal Reserve takes in response. “I hope the Fed accomplishes a soft landing and doesn’t overdo it hiking interest rates,” he says.
Those concerns notwithstanding, the general outlook remains positive. CRU is projecting mid-single digit growth across common alloy flat products in 2023. [Caption:]
SAF occupies a unique space in the nonferrous supply chain, with half of its operation dedicated to distribution and the other half fabrication.
(Photo courtesy SAF)