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Automotive Materials Report

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Aluminum vs. Steel: 'A Continual State of Change' By Contributing Editor Myra Pinkham Experts say it could take another five years for the materials mix to shake out in the auto industry. With North American car and light truck production at record levels, it’s a good time to be part of the automotive supply chain. But now is also the time for metals suppliers and processors to position themselves for the growth to come, experts say, even though the future automotive materials mix still remains very uncertain. “The auto industry is in a continual state of change,” says Mark Stevens, project manager for the Center for Automotive Research in Ann Arbor, Mich. The designs of vehicles, and the materials used to make them lighter and more fuel efficient, are undergoing a vast transformation ahead of the federal miles-per-gallon standards set for 2025. “There has never been a period when things have changed so fast or so dramatically as they have during the past three years,” he adds, “and they will likely continue to do so for the next five years.” The North American auto industry produced nearly 17.5 million vehicles last year. Vehicle output could hit 18.2 million units this year, says Mike Jackson, senior executive for production forecasting at Lexington, Mass.-based IHS Automotive. While the growth rate may be slowing, this represents a huge jump from the trough of 2009 when the industry made just 9.6 million vehicles. Strikingly, unlike in other high-demand periods, the market is not being artificially inflated by manufacturers’ sales incentives, notes Bernard Swiecki, CAR’s director of automotive community partnership. In fact, at an average of $34,000 per vehicle, automobile transaction values are at an all-time high. Household wealth from the improving job market and the need to replace the nation’s aging vehicle fleet should prop up sales for the next few years, predict the experts. Car buyers also are being lured into dealers’ showrooms by a host of new high-tech safety features. But not everyone is convinced that auto output can continue at this pace, with production already at all-time highs and the industry now in its seventh full year of growth. Christopher Plummer, managing director at Metal Strategies, Inc., West Chester, Pa., sees some signs the market is getting saturated. At some point, consumers inclined to buy new cars will have made their prized purchase. Those inclined to buy used will have a lot more options to choose from as the many leased vehicles find their way into the used-car market. Plummer expects 2016 to be a moderately positive year for automotive with low single-digit growth, though he says production could soon plateau at or near the current high levels. Slower growth is to be expected, as auto output tends to track with population growth, says Doug Richman, vice president of engineering and technology for Kaiser Aluminum Corp., Foothill Ranch, Calif. “Growth will continue to taper off until it returns to a more normal rate of about 1 percent per year,” he predicts. Richman also serves as chairman of the technical committee of the Aluminum Association’s Aluminum Transportation Group. Cars versus trucks The growth rate for light trucks is outpacing that of passenger cars, helped along by today’s low gasoline prices. The trend is positive for metals suppliers, because trucks contain more steel and aluminum than smaller cars, but will make it more difficult for the industry to meet federal fuel efficiency and emissions regulations. As recently as 2008, substantially more cars were produced than light trucks, including pickups, SUVs and crossovers. But demand for trucks has taken off. By 2012, the split was fairly equal. Today, IHS Automotive estimates the light-truck share will top 60 percent of all vehicles produced in North America this year. “Essentially, all of the vehicle growth last year was for light trucks,” Jackson says. “There will continue to be disproportional growth of light trucks this year, as well.” That includes crossovers, which are built on a car frame and have much better fuel efficiency than larger pickups and SUVs, he notes. On average, light trucks contain nearly double the amount of steel per vehicle as passenger cars. The market’s move from a 50/50 to a 40/60 mix of cars versus trucks has added approximately a half million tons to annual steel demand, says Jody Hall, vice president, automotive, at the Steel Market Development Institute in Washington. Consumer preference for larger vehicles also has given a boost to sales of aluminum and other lightweight materials. Lloyd O’Carroll, senior aluminum analyst for the CRU Group, says there are a lot more aluminum hoods and other closure panels in light trucks than passenger cars. Replacing the larger steel parts in a truck with aluminum gives lightweighting efforts a better bang for the buck. Steel makes its case As time marches closer to the 2025 deadline for automakers to increase their fleet’s corporate average fuel economy to 54.5 miles per gallon, the struggle to find new ways to take weight out of vehicles continues. This industry-wide effort has implications for every link in the supply chain, from the OEMs themselves, to their parts and materials suppliers and processors. Both the steel and aluminum industries maintain that the necessary lightweighting could be achieved by predominantly using their materials, helped along by development of higher-strength grades and new production techniques. Abey Abraham, director of the automotive and materials practice of Ducker Worldwide, Troy, Mich., says a multi-material approach is the more likely outcome of a cost-benefit analysis of each part, with each material finding its place in the vehicle envelope. Alternative materials, including composites and magnesium, will play a role, as well. “It’s all about finding the right material to fit the right application,” he explains. “There won’t be overnight changes like what happened with the Ford F-150 [going to an aluminum body]. That was a unique situation. Rather, there will be more slow transitions into more mixed material strategies.” Steelmakers recognize that use of conventional mild steels is on the decline in automotive. The steel industry is betting that its diverse portfolio of products, particularly advanced-high-strength (AHSS) and ultra-high-strength (UHSS) steels, will allow it to maintain a 50-55 percent share despite increased penetration of other materials, says SMDI’s Hall. (Ducker Worldwide estimates steel’s market share was 58 percent in 2008.) This includes the soon-to-be-commercialized third-generation AHSS, which steelmakers’ claim will offer greater tensile strength and formability. “The steel industry doesn’t get the credit it deserves,” says Blake Zuidema, director of automotive product applications for ArcelorMittal’s global research and development group. “The steel industry is constantly in a state of technological revolution, innovating and evolving to meet the needs of our consumers.” Industry R&D has succeeded in multiplying the tensile strength of steel almost tenfold in the past 20 years from 270 to 2,000 MPa, which means parts can be made much thinner and lighter without sacrificing their strength or vehicle safety. Currently, the typical North American light vehicle contains about 275 pounds of AHSS/UHSS, estimates Abraham at Ducker. That total is expected to grow to 375 pounds by 2020, including third-generation (Gen3) grades that are just becoming available. An early grade of Gen3 steel with a strength of 1,180 MPa is already being used in the Nissan Murano and Maxima, Hall says. Every quarter, steel companies introduce new products that are pushing into the Gen3 space, she adds. “There aren’t huge volumes available yet, but it’s coming.” Aluminum makes progress Meanwhile, aluminum continues to make inroads into the automotive market. “It has already exceeded our expectations and our expectations were quite high,” says Michael Murphy, Pittsburgh-based Alcoa’s vice president, commercial-global automotive. Some in the industry are disappointed, however, that another high-volume aluminum-intensive vehicle has not been unveiled, despite the commercial success of the Ford F-150. Ford has announced that its 2017 F-250 heavy-duty truck will also have aluminum body panels, but the F-250 is sold in much smaller numbers. Some luxury cars, such as the Cadillac CTS and CT6 and Jaguar’s full line, are using more aluminum, but those also are not large-volume vehicles. All eyes are on General Motors to see whether it goes to more AHSS or more aluminum when it announces the materials mix for the redesigns of its Silverado and Sierra trucks. Toyota reportedly might use more aluminum in its redesigned Camry. “It seems as if longer-term fuel efficiency requirements dictate that a large portion of light trucks will eventually end up having aluminum bodies, but it’s uncertain what the timing will be,” says CRU’s O’Carroll. “Globally, we anticipate double-digit growth in the use of automotive aluminum by the end of the decade,” says Tom Boney, vice president and general manager of automotive-North America at Novelis, Inc., Atlanta. Kaiser’s Richman says the aluminum content in North American vehicles has been rising about seven pounds per year for the past 40 years. That could accelerate to eight to nine pounds per year later in the decade as the new fuel efficiency standards get closer. That is in line with Abraham’s estimates that the aluminum content of the average North American vehicle has already grown from about 350 pounds in 2012 to 394 pounds in 2015 and could reach 450 pounds by 2020. He says the greatest portion of that growth will be from heat-treated sheet and plate, followed by increased use of extrusions. Analyst Timothy Hayes, a principal of Lawrence Capital Management, Inc., estimates that North American shipments of heat-treatable aluminum sheet and plate to the auto industry nearly tripled to 733 million pounds in 2015 from 258 million pounds in 2014. That figure is expected to increase another 36 percent to about 1 billion pounds this year. At the same time, extrusion shipments increased 5 percent to 549 million pounds in 2015 and could increase anoth- er 10 percent to 605 million pounds in 2016. Not only is automotive using more aluminum, it is using more high-strength aluminum. CAR’s Stevens says this includes greater use of 6000-series alloys, in some cases substituting for 5000-series product. Some 7000-series heat-treated aluminum sheet, which to date has largely been used for aerospace applications, is now being tested for automotive components, as well. Advances in aluminum production technologies are giving automakers new options. One example is Alcoa’s Micromill continuous cast sheet, which is said to be 30 percent stronger and 40 percent more formable than conventional aluminum alloys. Compared to high-strength steel, Micromill product is 30 percent lighter and twice as formable, the company claims. It’s not just steel and aluminum that are striving for a larger share of the lucrative auto market. Both traditional and nontraditional magnesium suppliers also have their eyes on the prize. South Korea’s Posco and Germany’s ThyssenKrupp AG, through its Magnesium Flachprodukte GmbH sub- sidiary, have been working cooperatively to produce magnesium sheet for automotive applications. The casting-rolling technology they are developing uses lower-cost inputs and greatly reduces the number of production steps compared with conventional magnesium sheet production, the companies say. While lighter than both steel and aluminum, magnesium tends to be more expensive and harder to form. To date, carmakers have not used much magnesium in their vehicles, other than in die castings, but that could change in the next three years, says CAR’s Stevens. Investments in new capacity One big question is whether producers of these metals will have enough production capacity to meet the growing demand from the auto industry. Executives from both the steel and aluminum industries have voiced confidence that planned investments and expansion projects, coupled with further development of new alloys and production technologies, will enable them to meet carmakers’ needs. Companies are making other moves to better position themselves to take advantage of new automotive business. For example, AK Steel plans to open its Research and Innovation Center in Middletown, Ohio, late this year, which will enable the steelmaker to bring out new grades of steel more quickly. AK Steel also could invest in an additional annealing line at its Middletown or Calvert, Ala., facility, or possibly both, should additional capacity be needed, says Plummer at Metal Strategies. Minimill steelmaker Nucor Corp. opened a Detroit office in January to support its growing automotive business. Nucor’s shipping rate into the auto market increased 20 percent last year to 1.4 million tons. The company’s goal is to increase that volume to 2 million tons over the next few years, says John Ferriola, Nucor’s chief executive. Nucor has made auto-related investments at its mills in Gallatin, Ky., Memphis, Tenn., Norfolk, Neb., and Darlington, S.C., and is working to qualify its Gallatin, Ky., plant for automotive products. In addition to several companies that have made investments to enable production of AHSS, including Gen3 grades, others are filling unconventional niches. One notable example is Cleveland toll processor Ferragon Corp., which is installing an annealing line at its HyCal Corp. subsidiary in Gibraltar, Mich. The line will allow it to convert hot-rolled coil to AHSS and UHSS on a toll basis when it goes online later this year. Ferragon President Eduardo Gonzalez has made other investments over the past few years to ensure his company is well positioned to supply both steel and aluminum. His aluminum subsidiary, Autolum Processing Co., specializes in the processing of aluminum for body-in-white applications. Constellium NV and United Aluminum Co. of Japan recently announced they are expanding their joint venture to supply aluminum auto body sheet in the United States. The venture plans to build two 100,000-metric-ton finishing lines at a yet undetermined U.S. location. Several other aluminum producers, including Alcoa, Novelis and Aleris, also have auto sheet capacity additions in the works. And at least one steelmaker is considering producing auto aluminum sheet, one analyst says. “Conversations with automakers give us confidence in future growth, and we expect that new capacity will be needed in step-change fashion,” says Boney at Novelis. While the materials mix for vehicles to be built in the 2020-25 timeframe is still uncertain, metals and parts suppliers won’t be caught by surprise, says Abraham. “A lot of knowledge is being shared along the value chain,” he says, and material and parts suppliers should be ready to meet the OEMs’ needs when the time comes. It usually takes about five years from the point when a carmaker begins the design and engineering on a new vehicle to actual production. So the industry only has a few years left to begin designing the cars and trucks that will be able to meet the government’s 2025 standards. Many parts suppliers have already begun to make the investments necessary to take advantage of the opportunities presented by the shift in automotive materials, says Julie Fream, president and CEO of the Original Equipment Suppliers Association, Southfield, Mich. The process is likely to be gradual and ongoing as the OEMs continue to select materials for each part. “Few companies can invest to be able to work with every material possible,” she adds. The same is true of toll processors, says David Detzel, director of outside sales for the Voss Taylor division of Voss Industries, Taylor, Mich. The speed at which companies invest and the types of equipment they buy depends on the vehicle programs they want to serve. Companies that do business with Ford, especially for the F-150, have upgraded their aluminum processing capabilities, for example. Investments geared to the new grades of AHSS are slower coming, he adds, “but that will also pick up eventually.” Many are waiting for more clarity about the future material mix, which could come after the mid-term review of the CAFE regulations in 2018. “2020, however, will be the point of no return,” Ferragon’s Gonzalez says. “But by then the auto materials landscape should be well defined.”

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