The aluminum market has been relatively stable over the last few years. But what does the future hold for nonferrous metals?Stability is the buzzword for the nonferrous market, with supply, demand and pricing all holding relatively firm in 2024.
Atilla Cetinel, COO, Kibar Americas, Chicago, Ill., says the current demand for aluminum flat-rolled products is stable compared with the 2023 levels, with some initial seasonal softening. Supply is available in most products, with limited tightness reported.
“Typically, in the summertime when there’s a lot of commercial construction, we get very busy. This summer and last summer have both been flat, with both being busier than the other seasons but not as busy as we expected. Until business conditions improve, demand is expected to remain low with adequate domestic supply,” says John McClatchey, vice president of sales and marketing for SAF, Atlanta.
Greg Weekes, president, Eastern Metal Supply Inc., West Palm Beach, Fla., says that as of right now, there are no problems with material. The current demand is slightly up for the year. “Some sectors are busier than others. There is plenty of capacity in the U.S. Extrusion companies have added at least 32 additional presses in the last 18 months.”
But Orlando Ferran, president, Aluminum and Metals Services Corp, San Juan, Puerto Rico, says his company has upped inventory in response to trade actions and previous supply issues. “We used to have, for example, three or four months’ inventory at a time. Sometimes we’ve had to expand that to six months inventory but in our business, having a readily available supply of material is important so that our clients don’t run out of stuff. That’s just key to our industry and fortunately for us that’s been the case and it has been very profitable the last two or three years.”
When it comes to the primary factors affecting aluminum prices and their influence on operations, there are varying opinions. Supply and demand forces always plays a role, but it seems as though the market is fluctuating more based on movement of money in the financial markets. “As more money flows into commodities as a hedge in investments, it is having a major impact on daily commodity pricing. Trying to parse out the fluctuations in pricing based on underlying economic data versus financial investments data becomes a bit of a tough game to play,” Mike Weis, vice president of sales, Petersen, Elk Grove Village, Ill., says.
There exists a lot of discussion around the Fed cutting interest rates, which would essentially create a dollar-weakening environment. When the dollar weakens, aluminum trades inversely because it’s a dollar-denominated commodity. Some of that was seen in August.
“The problem here is that demand seems to be soft and we’re seeing some slowing of growth essentially and so these movements that are happening on the LME currently seem to be driven primarily by currency. Of course, the underlying phenomena that drives the price higher is demand resurgence – and so we do not believe the current gains in the LME seen in August are sustainable until we see a demand resurgence. What we are anticipating though for 2025, 2026, 2027 and in particular for the downstream sectors is that there’s going to be a pickup in demand that we believe to be somewhere in the 3 to 4 percent in some regions,” says Kaustubh Chandorkar, head of North America analysis, aluminum, CRU.
McClatchey says aluminum prices over the last six months have been pretty flat for the products his company purchases. “I’ve sort of seen this calming period over the last year up until this recent disturbance in the force with our vendor overseas.”
“The demand is directing the prices for flat-rolled products as the supply is stable, so that movement in demand is reflected in spot prices. The current situation does not affect our operations,” Cetinel says.
Other factors that could influence nonferrous pricing include the global political situation, energy costs, softness in the world economy, etc. Nonetheless, Weekes says, “Aluminum pricing has not influenced our business as we are able to adjust pricing as needed on a month-to-month basis.”
In addition, global trade policies, tariffs or sanctions have also affected many in the aluminum industry. Cetinel says the tariffs and trade actions for flat-rolled products are moving some trade flows from market to market, as most actions are directed toward China.
When the tariffs were first introduced during the Trump administration, automotive aluminum purchasers took much of the capacity. As a result of production limitations, companies such as SAF were unable to buy domestic aluminum, so it had to start buying overseas, McClatchey says. “We initially had to pay tariffs on the overseas imports of this alloy aluminum that we brought in and ultimately, we had to go through the Department of Commerce and get a tariff exemption because we didn’t have anyone domestic who was willing to sell us anodizing-quality aluminum.
Over time, we did ultimately end up getting back on the domestic availability schedule. We continued to stay in touch with our import vendors,” McClatchey states.
For other products, the tariffs didn’t have much of an effect on sourcing. Weekes says that it really has not been much of an issue for his company. What EMS was sourcing offshore was a very small percentage of its overall buy. “We have had to adjust some pricing as needed on product that we stopped buying offshore.”
Matthew Abrams, senior analyst, CRU Aluminum, says the tariffs are working as intended in one way, driving support for onshoring of production of semi-fabricated products, extrusions and flat-rolled products, and also foil and some other end-use sectors as well. But the ultimate impact remains a question.
“There’s a lot of questions that need to be answered. A lot of the areas that are being targeted, such as EVs and solar panels, they’re having trouble kind of getting those marginal consumers already. If these new tariffs result in higher end-use prices, is that going to lower overall demand in the long run? That’s one of the bigger questions. Also, how feasible is it to onshore all of these supply chains because when you’re talking about a solar panel, you know you’re not just talking about the aluminum that goes into it. It’s the whole piece that we would need to onshore so there are a lot of question marks,” he adds.
There are several strategies being implemented to navigate recent supply chain disruptions. Todd Hamilton, supply chain manager, SAF, Atlanta, Ga., says the most obvious method is just expanding the base. Historically the company dealt with a handful of suppliers and when supply chain disruptions started happening, SAF expanded its reach globally. “In 2018-2019, we ended up having to go overseas to start purchasing metal because there was a domestic crunch following the import tariffs. Again, we had to cast a wider net and deal with some new suppliers that we’ve never dealt with before so the strategy of moving forward to keep us out of this situation again, should it happen, is to continue to develop new suppliers who can supply us consistently.”
Ferran says ALMETCO has increased its inventories, which has come at a price as interest rates have climbed. “Having larger inventories when interest rates are up obviously increases your carrying cost but running out of metal or being short of metal or telling your clients that you don’t have enough metal, that’s the only risk that we are not willing to take. Our main strategy is just sometimes we’ve had twice as much aluminum than we normally want to have but that’s just something that we’ve had to do given the supply chain situation.”
Also, to remedy supply chain disruptions, Cetinel adds the company always evaluates multiple options with customers to mitigate risks, including partnering with carriers and metal service centers. The company is a firm believer in the importance of transparent communications about forward forecasts and pipelines.
But what will the supply base look like in the future? McClatchey thinks there will be further consolidation in the industry, particularly family-owned companies that may not have the next generation in line. However, there will always be more to step in the void. “I think there will still be people that go off and just because of the nature of the economy will want to be entrepreneurs and try to start up new companies. As one gets eaten up, I think other ones will start but I think it’s just the cycle of our business.”
Weekes says there has not been much action at the distribution level yet, though Eastern has been pursuing value-added companies to acquire. Over the last few months, EMS welcomed Eagle Metal Distributors, Orlando, Fla., and Jacksonville’s Aluminum Products Wholesale into the company.
Aluminum distribution should be an attractive option for investment, as there are several markets with healthy long-term growth prospects. “I think automotive will definitely continue to grow. I don’t see anything but acceleration in the demand for aluminum in the automotive market,” McClatchey says.
Abrams agrees, and sees particular strength with the push for electric vehicles. That will involve a significant pounds per vehicle increase. Moreover, it’s not just one part of the industry – it’s going to be extrusion, it’s going to be battery foil, even castings could gain market share.
“I think that’s the biggest and hands down largest growth sector that we see going forward. After that, I think it’s can sheet if they can continue to hold current trends. There are a lot of new beverages being canned in aluminum cans. When you look at the canned wines, energy drinks and water, if you think of gaining 2 to 3 percent of the global water market in a can that’s a huge volume so there’s some growth there,” he says.
However, Weekes says that as the cost of money starts coming down, you will see discretionary spending pick up on items such as solar, RVs, boats, remodels, etc. Another growth area moving forward would come from parts of the infrastructure bill.
“For us, it’s the export market, especially the Eastern U.S. and Central America. I think drop shipments that we don’t process where we basically act as a broker is the kind of situation where margins are smaller and we work as an intermediary and I think that looks very promising,” Ferran adds.
“In flat-rolled products, we foresee there will be a significant growth in the foil demand especially in HVAC, packaging and e-mobility,” Cetinel says. “The growth in the aluminum sheet will also be in packaging, transportation and building and construction. This is expected to be led by overall demand increases from economic growth as well as the unique characteristics of aluminum for improving sustainability, as aluminum is 100 percent recyclable, lightweight, impermeable, highly conductive and easy to form.”
The biggest threat to the market remains China, particularly if it keeps production levels elevated without any regard for general market conditions. That will only hurt the domestic producers. “Trade policies, tariffs, etc., can help mitigate some of this, but history has proven that there are always ways around that regulation. We are all connected globally…we can’t fully insulate ourselves from the actions of other major producing countries,” Weis says.
“We’ve got some of these large world conflicts that are happening at the same time where we have aluminum that’s mined in one country and smelted in another country and rolled flat in another country and anodized in another country so we have all of this tangled web of relationships between businesses that are inevitably affected by politics. I think that world conflicts and climate change will dictate on a macro level what ends up happening in the aluminum industry in the near future,” McClatchey states.
According to Weekes, the most significant risk is the cost of money and inflation, which has affected discretionary spending. The housing market has been affected as well.
Ferran says that if for any reason the tariffs established by Section 232 are removed, the prices are going to probably come down like a rock. “If you have a lot of inventory in that short time, it’s worth half the replacement cost and suddenly it is 50 percent less and that has happened in the past. Then you can run into some big paper losses, and in the past, that has put some metal service centers out of business.”
Another significant issue is the availability of scrap. “The agility in which the industry can improve the recovery of scrap units that will be demanded to support the decarbonization goals in the short and medium term will also be an important challenge facing the global industry overall,” Cetinel concludes.
[Caption:]
The current construction season has been relatively flat, observes SAF executives.
(Photo courtesy SAF)