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A record 66.2 percent of North American auto production in 2017 was for light trucks, including the Edge crossover vehicle.  (Photo courtesy Ford Motor Co.)

Automotive Outlook On the Move Again

Analysts expect a return to growth in North American auto industry

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North American automotive production is still down slightly from its 2016 peak, but is expected to remain quite strong in 2018, perhaps even up from a year ago. Several uncertainties continue to cloud the outlook, however, including how stringent future fuel efficiency standards will be and the effect of the recently announced steel and aluminum Section 232 tariffs on auto sales. 

Certain other trends in the automotive market, such as the growing percentage of light trucks in the vehicle mix and expectations of increased demand for hybrid and electric vehicles in coming years, will have implications for steel and aluminum and other metals and non-metallic materials used by automakers. 

After reaching a record of 17.9 million units in 2016, North American light-vehicle production fell about 4.2 percent to slightly above 17 million vehicles last year, according to Christopher Plummer, managing director of Metal Strategies Inc, West Chester, Pa. There are, however, conflicting viewpoints about what will happen this year. 

While it was previously anticipated that North American auto output would ease further, perhaps to as low as 16.5 million vehicles, many automotive analysts are now saying there could be an increase that reaches as high as 17.4 million vehicles. Chuck Short, marketing director for Jackson, Mich.-based Gerdau, says auto analysts are expecting further year-on-year growth every year through 2021. Auto output could climb to about 19 million vehicles by 2025, according to Abey Abraham, managing director, automotive and materials for Ducker-FSG, Troy, Mich. 

This comes as automakers add capacity throughout North America. Volvo will open an assembly plant this fall in Charleston, S.C., and is considering doubling its production capacity by 2021. Mazda and Toyota’s newly formed Mazda Toyota Manufacturing, U.S.A. Inc. plans to begin production in Huntsville, Ala., in 2021. BMW is currently ramping up its San Luis Potosi, Mexico, facility. 

How much sales and production move up is uncertain, however, given there are several trends that could have a dampening effect. Carla Bailo, president and CEO of Ann Arbor, Mich.-based Center for Automotive Research, says factors such as increasing household debt and car loan defaults, plus the move by automakers to offer longer-term car loans, are working against growth. 

Tom Moline, executive vice president of commercial operations for TimkenSteel Corp., Canton, Ohio, says there are other conditions countering that. Tailwinds include the solid U.S. economy, still-low interest rates, availability of credit and the fact the average age of vehicles on the road is nearly 12 years, resulting in continued pent-up demand. 

It also remains unknown what impact the steel and aluminum Section 232 tariffs will have. There has been considerable speculation that they could have a negative impact upon consumer purchasing and overall economic growth. John Ferriola, president, chairman and CEO of Charlotte, N.C.-based Nucor Corp., disputes this, stating the 25 percent steel tariff would only raise the price of the average car by about $160. 

One trend that has been a positive to metal suppliers to the automotive industry is the growing percentage of sport utility, crossover vehicles and pickup trucks being sold. Last year, a record 66.2 percent of North American auto production was for light trucks, up from 61.8 percent the previous year, Plummer says. And based on the past few months’ production, it appears that the truck percentage will climb even higher this year. This shift is good for metal suppliers, as light trucks are about two-thirds heavier than passenger cars. However, Bailo says a lot of that growth is from CUVs, which aren’t quite as heavy as SUVs and pickup trucks. 

Expectations for increased electrification of vehicles in coming years could also have implications for metals suppliers, says Michael Robinet, managing director of automotive for IHS Markit. However, even though there is a big push for hybrids and electric vehicles elsewhere in the world, particularly in China and Europe, North America is likely to be a laggard. Bailo agrees, noting that currently these vehicles only account for 2.3 percent of U.S. auto sales. And even though all the major automakers are adding electrified vehicles, she doesn’t expect the U.S. hybrid and electric vehicle share to move much beyond 3.2 percent by 2030. 

If the market for electrified vehicles expands faster than that, it would likely be beneficial to aluminum and advanced high-strength steels, as lightweighting is currently crucial to extending the range of those vehicles, Ducker’s Abraham says.

That could become less critical as newly developed technologies will enable vehicles to get more power density and more range from the battery, claims Jody Hall, vice president-automotive for the Steel Market Development Institute. She says the combination of less “range anxiety” and lower cost with fewer batteries and less expensive materials being used could make these vehicles more attractive to consumers. 

Growth in electric vehicles will negatively affect demand for certain steel products currently used in internal combustion engines and transmissions, such as special bar quality and seamless mechanical tubing. However, Gerdau’s Short says, the short-term trend in North America will be toward hybrids rather than pure electric vehicles. That won’t have the same negative impact, given the hybrids maintain an internal combustion engine. 

The biggest affect upon the metals used by the sector has been the automakers’ push to reduce the weight of their vehicles to meet expected more stringent fuel efficiency and greenhouse gas emissions standards scheduled to take effect by 2025. While new drivetrain technologies are also part of this effort, a major focus has been on the use of more lighter weight materials, such as aluminum, AHSS and even carbon composites. Matt Meenan, a spokesman for the Aluminum Association, maintains that aluminum is currently the fastest growing material in North American vehicles, largely because of this lightweighting trend. 

There is uncertainty about the urgency of the changeover, Robinet says, as there’s a major midterm review initiative under way by the U.S. government. Upon completion of its re-evaluation, the federal government could delay or relax the established standards. 

This could result in automakers overestimating what the emissions regulations will be, Robinet says, which could be good for some metals suppliers to the industry. “It will definitely be good for aluminum producers, but it could also be positive for some makers of higher-strength steels.” 

Abraham says each automaker is developing a unique value proposition and material plan, based on how vehicles have differing lightweighting requirements. This will produce more of a mixed material approach, both in North America and around the globe. 

The tale of the Ford F150 pickup is evidence of how a single solution is not likely. Upon its release, there was a belief a massive conversion from steel to aluminum-intensive vehicles would follow. “That hasn’t happened,” says Plummer, noting the 2018 Audi A8 is 40.5 percent steel vs. 58 percent aluminum, compared with the 2008 model which was 98 percent aluminum. 

Ganesh Panneer, vice president and general manager of automotive for Atlanta-based Novelis Inc., says some automakers are dedicated to using high percentages of aluminum in new vehicles, but others are taking a multi-material approach. “We believe that in both cases aluminum will have a strong role, especially for closure systems, such as hoods, doors, liftgates, fenders and roofs.” He notes there are also several research projects under way to develop new grades of high strength 6000- and 7000-series aluminum to be used in body structures – an application where AHSS now is seen to have some advantages. 

Hall notes that third-generation AHSS steels are still being validated by automakers and won’t likely find their way into vehicles for another two to three years. This includes the Gen3 steel that processor Ferragon Corp. plans to produce at its HyCAL Corp. facility on a toll basis for mills and/or service centers that don’t have continuous annealing lines. Eduardo Gonzalez, Ferragon’s president, says he doubts other toll processors will follow this path given the size of the investment and the uncertain auto materials mix. 

Hall says some early 2.5-generation AHSS steels – those with roughly 1,200-megapascal tensile strength but too-low ductility or elongation to qualify as a true third-generation AHSS steel – have already been out in the market for three to four years. 

Ducker estimates the overall average curb weight of North American vehicles will decline about 9.6 percent to 3,465 pounds from 2015 to 2025, with the aluminum con- tent increasing from 397 to 565 pounds per vehicle, while the total steel share is expected to fall to 47 percent from 55 percent. Abraham says most of the decline for steel will be in mild and bake-hardened steel, as well some traditional high-strength steels. He points out that while some of this will be the result of substitution to aluminum and other lighter materials, part of the reduction will come from AHSS replacing the heavier milder steels. 

As far as aluminum content, Abraham estimates that automotive body-in-white and closure sheet will increase from 35 pounds in 2015 to 163 pounds sometime between 2025 and 2028, while extrusions use will grow from 36 to 54 pounds. Aluminum castings will only increase about 4 percent because of the shift toward smaller powertrains. 

“We believe that we will be able to produce the aluminum needed to support the additional demand from the automotive sector for the next 10-15 years,” the Aluminum Association’s Meenan says, noting that since 2013 the industry has either put in the ground or announced about $2.6 billion worth of auto aluminum sheet investments. 

Novelis, for example, is planning to break ground this spring on a 200,000-metric-ton facility in Guthrie, Ky., which it expects to be up and running by the first quarter of 2020. Also, fledgling producer Braidy Industries Inc. plans to begin construction this quarter on the first phase of its Greenup County, Ky., mill, which will produce 370,000 tons of high-quality sheet, including 200,000 tons of auto aluminum sheet, starting in 2020. Last year Aleris invested $400 million in its sheet facility in Lewisport, Ky., to add automotive capabilities. 

It is possible more aluminum sheet production capacity could become necessary, says Peter Basten, head of packaging and automotive rolled products for Constellium. Still, he believes that aluminum producers will hold off on making any additional moves until they get significant customer commitments. 

On the steel side, there has also been increased focus by the producers on the auto market. Nucor is on pace to achieve its goal of shipping 2 million tons to the automotive sector by the end of this year. This comes after it increased shipments to the segment 7 percent last year to 1.5 million tons, including 1.2 million tons of sheet and 248,000 tons of SBQ. 

Nucor is making several auto-related investments. They include a 500,000-ton specialty cold-rolling mill in Hickman, Ariz., slated to start up in the first half of next year, which will enable it to expand its capability to produce lighter gauge and higher-strength sheet products for the auto market. The company also plans to start up a 72-inch-wide, 500,000-ton-per-year hot-band galvanizing line at its Gallatin, Ky., mill in the first half of 2019, giving the company the ability to supply a number of growing auto segments it doesn’t currently serve. Finally, it is jointly constructing a 400,000-ton-per-year auto-related galvanizing facility in Mexico with Japan’s JFE Steel. 

There has also been an R&D push by several SBQ producers to develop cleaner grades of steels, including ultra-premium and ultra-high-endurance grades, that could be used for new powertrain technologies and even parlayed to other SBQ applications, TimkenSteel’s Moline says. This comes amid tighter specifications from auto OEMs looking to improve fatigue life and toughness and to eliminate warranty issues and recalls, Short says. 

“I believe that all the different changes being put into place are going to benefit the auto industry and its materials suppliers,” Ducker’s Abraham says, noting that it will enable both automakers and the auto supply chain to be more efficient, more effective and more innovative.

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