Inventories have been worked off throughout the aluminum space. Will demand force distributors to restock?
The long-range outlook for aluminum products in North America, and the rest of the world, remains decidedly sunny. Strong growth in automotive, an even greater stranglehold on the beverage can market and other factors make the entire nonferrous supply chain optimistic about the material’s future.
It may take a little while for the good times to resume, however.
“I don’t want to call it bearish, and I’m certainly not going to call it bullish,” Commonwealth Rolled Products CEO Mike Keown says of his forecast for the months ahead. “It’s just cautious.”
The reasons for such skittishness are obvious. Inflation, albeit softening, remains a pesky annoyance. Interest rates are elevated, particularly after two decades of near-negligible levels. Macroeconomic concerns are a reality. And all of this is set against the backdrop of a presidential election that is almost certainly going to be contentious.
For some, the challenging times have already begun. “I think it’s been down across the board,” says Randy Adkisson, director of Erickson Metals Corp., which recently completed a move to a larger location in Aurora, Colo. “I don’t think there was any one market that wasn’t down.”
To Keown of the Lewisport, Ky.-based Commonwealth Rolled Products, the consuming industry has fit into two distinct camps. Durable goods use of nonferrous products has been solid. But for those purchases tied to consumer spending, many of which are markets service centers sell into, conditions have been a lot slower.
“It’s a bit more of the discretionary spend portion of industrial production and distribution that’s down considerably year over year,” he says.
Greg Weekes, president of Eastern Metal Supply, Lake Worth, Fla., agrees. “Discretionary money is kind of tightening up. They’re not spending money like they were.”
Still, he adds, business levels can vary by geography. In Florida, where much of his company’s business is done, activity has been robust. The effect of hurricanes, not even including the most recent damage done by Idalia, has sparked a considerable amount of rebuilding.
“We’re seeing some softening, obviously with the Midwest pricing coming down. Outside the state of Florida, it’s worse than it is here,” he says.
Ryan Adams, director of Aluminum Rolled Products for Metal Exchange Corp., St. Louis, says several of his company’s main markets, including distribution, were slow to start the year. In contrast, sales to the HVAC market and building and construction began the year robustly and have lost some steam along the way. But under both scenarios, the unloading of inventory by end users was one of the reasons behind the declines.
“Q1 we did OK. Q2 was low, due to the amount of destocking we’ve seen in the market. The customer shipments are relatively stable, so it seems more through burning of excess inventories,” he says.
That’s one truth throughout the supply chain. Coming off the zany past three years, beginning with COVID and running through the supply-side challenges, many distributors and end users were buying anything they could get their hands on, which ultimately led from barren shelves to too much on hand.
“Generally, people in manufacturing got all out of whack with their inventories,” says Robert Stiles, vice president of operations for Erickson. “They were worried they weren’t going to be able to get material and they bought more than they needed.”
But the destocking has largely run its course. “One of the things working in our favor is destocking has been going on for over a year, so customer inventories are lean everywhere. If demand and shipments stabilize, it’s going to require inventory in a hurry,” Adams says.
Fortunately, the production side is ready to fill those rush orders. Today, getting material from the mill is far less troublesome than in the recent past, at least for most products.
“Given where overall volumes are today, lead times are very healthy,” Keown says. “There are more short lead times today than sometimes typical, which then allows distributors to keep less inventory than they normally do.
Adkisson agrees. “Lead times have come down dramatically. There are some depot items available now. It’s definitely improved.”
The change is similar in the extrusions world. Weekes says there are new presses all over the country, reversing the conditions of only a few years ago.
“There is excess capacity now. We were waiting between 10 and 22 weeks for metal. We can get metal in a week now. It’s definitely turned the tide.”
The story is largely the same for sheet products, though he says a specialty product such as Tread-Brite continues to have some availability issues.
Adams says there are some issues getting plate and heat-treat products, but otherwise “everything is generally available.”
For many in the service center space, while availability is not an issue now, they’re not so certain how that will hold up in the future. The increased usage of aluminum in automotive, coupled with growing market share in packaging, often leaves service centers wondering how much common alloy sheet will be left over.
“I think the long term-concern is there is still a shortage of domestic supply if and when the business turns around. I don’t think there’s enough domestic supply to support the market,” Adkisson says.
There are two major aluminum investments under way that will increase capacity for sheet products. Novelis is investing $2.5 billion to build a low-carbon recycling and rolling mill in Bay Minette, Ala. The facility is planned for 600 kilotons initially, with room to grow beyond that. It is expected to open in mid-2025.
Also on the horizon is Aluminum Dynamics, the first foray into nonferrous material by Steel Dynamics Inc. The $2.2 billion investment will deliver an additional 650,000 metric tons of flat-rolled product to the market.
How much of that goes to the distribution market remains to be seen. Adams predicts the two investments will be “cannibalized” by can sheet and automotive.
“Will they make common alloys? Absolutely. Is it a priority for them? No,” he adds.
Keown, whose company specializes in common alloy and is wrapping up its own major capital project, believes the investments in progress will effectively supply the market. “Between what we do and what a few of our competitors are doing, I think the U.S. will be capable of producing to meet domestic demand.”
Adams says it always seems that way if the main consumers of aluminum sheet are in a lull. “The moment those start to spike, common alloy, at least domestically, can disappear pretty quickly.”
Imports could offset any shortage in demand, which would mark for a bit of a change from the current status. Many companies have shifted their supply away from foreign product in favor of North American producers, aided by supply chain concerns as well as the existing Section 232 tariffs.
“For us, the tariffs have been pretty inconsequential,” says Stiles. “We’ve dropped back to almost total domestic supply. A lot of people have done that; therein lies some of the inventory issues with availability.”
Adams says domestic mills have been unusually disciplined in the recent years. In contrast, he’s seeing offshore suppliers becoming “very aggressive on pricing.”
While pricing has come down significantly from the start of the year, supply chain participants can take some solace in the current conditions. “To me, there’s some normalcy in the market. We’re not seeing 40-cent swings in two months, which we’ve seen a lot over the past three to four years,” says Troy Erickson, president of Erickson Metals. “It seems a more stabilizing marketplace, which I think is good.”
But how long will the stability last? Weekes wonders if many external factors could present a difficult year ahead. “Next year could be a challenge, with the election and a lot of unknowns with Ukraine and Russia.”
The uncertainty hovering over the coming months and year is evident in many ways. Adams says his company is worried about business conditions in the new year, but “we’re actually starting to see business levels improve across all of our major markets.”
Keown says the now-striking UAW workers and pesky interest rates are just a few of the challenges facing the overall market, and the nonferrous space in particular. “The economy in general is just a little fragile at the moment.”[Caption:]
Inventory destocking has been going on throughout the supply chain.
(Photo courtesy Eastern Metal Supply)