Aluminum makers and distributors agree on one thing: business is booming. Strong markets, higher prices and positive trade actions have propelled the market through the first half of 2018, and many in the industry feel the good times are here to stay.
“The market is as strong as I’ve ever seen it,” says Greg Weekes, president of Eastern Metal Supply, Lake Worth, Fla. “I’ve been in the business 41 years, and it’s as good as it’s ever been.”
Aluminum demand is up in all of the major product categories, driven primarily by the automotive sector and an overall healthy economy. And while continued global overcapacity and some tariff-related supply issues, particularly with sheet and plate products, have raised concerns, the consensus throughout the industry is that market fundamentals remain strong.
“Everyone is enjoying good business for a variety of reasons,” says Bob Mraz, vice president of sales and marketing at TW Metals, Exton, Pa. “When I look at all of the industries we have and all of our customers within those industries, I can’t look at one and say, ‘this segment is struggling.’ It’s really an excellent supply-demand kind of balance. Prices are up, but they’re not crazy. Demand is up, but it’s not stifling. Lead times are longer, but they’re not excessive. It’s the good times.”
The North American aluminum industry is currently in its ninth consecutive year of demand growth, according to the Aluminum Association, Arlington, Va. Last year, aluminum demand totaled 27.2 billion pounds, an uptick of 3 percent over 2016.
“The demand picture is really good,” says Matt Meenan, senior director of public affairs at the Aluminum Association. “In 2017, we were at a record level of demand since we started tracking data back in the 1960s.”
So far in 2018, that trend has continued. The most recent data from the Aluminum Association show U.S. and Canadian shipments of aluminum totaled 7.1 billion pounds through March, up 4.7 percent year over year. Meanwhile, apparent consumption in domestic U.S. and Canadian markets totaled 6.3 billion pounds through March, up 2.9 percent from 2017.
And while these industry numbers are encouraging, individual distributors are seeing even greater year-over-year gains.
“Demand is up for us almost 30 percent, and it is across the board,” says Mraz, who notes the largest increases are in aluminum tubing and aluminum bar and plate. “The absolute greatest demand is for tubing, and the second most in-demand product form that we see is plate. Our plate sales have grown significantly this year, almost doubling.”
Even sales of aluminum extrusions, which Mraz says are lagging a bit, are still up about 5 percent at TW Metals.
Weekes credits the growth in demand, which for Eastern Metal Supply is up about 15 percent in pounds sold, to the Trump administration’s economic policies, as well as the rebuilding efforts from last year’s hurricane season.
“I think there are more spendable dollars out there,” Weekes says. “The market is as strong as it has been in 15 years. And obviously our business, because of the shutter side, is driven a lot by hurricanes… It’s been a pretty big, long rebuild, so that has helped business for us.”
Aluminum makers are also experiencing the good times, with many reporting record shipments in the first half of the year, along with increased earnings driven by higher prices. At Kaiser Aluminum Corp., Lake Forest, Calif., shipments and net sales are up in 2018. Net sales through June were up approximately 13 percent to $803 million, while shipments increased 4 percent in that time to 335 million pounds.
“Solid second-quarter 2018 results were driven by strong demand and record shipments,” Kaiser Chairman and CEO Jack Hockema told investors in July. “Record shipments in the second quarter of 2018 reflected continued demand growth for our general engineering applications, continued growth in automotive extrusion content, improving demand for commercial aerospace applications as supply chain destocking moderates, and the benefits of increased capacity from recent investments.”
Similarly, New York-based aluminum producer Arconic saw sales jump 8.8 percent in the first half of 2018 to $7 billion. “All of our major markets are healthy,” Arconic CFO and executive vice president Kenneth Giacobbe said during the company’s second quarter conference call. “And on a year-over-year basis, when normalizing for the impacts of aluminum prices and currency, commercial transportation is up 20 percent, automotive is up 14 percent, aero engines is up 10 percent and aero defense is up 20 percent.”
The three biggest markets for aluminum products are transportation, containers and packaging, and building and construction. However, the single largest consumer of aluminum is the automotive segment, according to Meenan, of the Aluminum Association.
“We’ve been penetrating the auto market pretty much consistently for the last 50 years, but there’s no question that in the last five or 10 years that growth has sort of accelerated,” Meenan says. “Certainly there’s been increased consumer demand for more fuel-efficient vehicles, and then there’s also no question that there’s been increased regulatory pressure on automakers to improve their fuel economy through the Corporate Average Fuel Economy standard.”
Based on the projected continued incorporation of aluminum in cars and trucks, Hockema said Kaiser continues to expect growth in its automotive extrusions business. “North American build rates are expected to improve approximately 1 percent year over year,” he told investors. “We expect continued content growth to drive mid-single-digit year-over-year growth in our shipments and value-added revenues for these applications.”
Among other end markets, packaging has remained flat over the last couple years, according to Meenan. While this market, which is largely comprised of the aluminum can industry, is in slight decline, more and more brewers are beginning to can their beers, which has helped mitigate the losses.
Demand among aluminum distributors has also been positive. Mraz says TW Metals, which acts as a master distributor, has increased inventories to meet customer demand.
And on the toll processing side, Houston, Texas-based TSA Processing has seen its aluminum business increase in 2018, suggesting that its distribution customers are moving more fabricated aluminum. “From talking to master distributors and looking at forecasts, I would say we’re going to stay busy for the balance of 2018 and at least for the first half of 2019,” says Brenda MacInnis, director of sales and business development at TSA Processing. “I would say for the next 10 to 12 months, business is going to remain strong.”
The U.S. consumed between 5 million and 6 million metric tons of primary aluminum in 2017, despite only producing about 1 million metric tons of the metal. “The demand picture is really good, but the flip side to that is that the demand is increasingly being met by imports,” says Meenan. “We are increasingly having great demand, but a lot of that metal is coming in from foreign countries. So, we’re not necessarily getting all the benefit of that as we could be in the U.S.”
Between 2013 and today, the U.S. has gone from 12 operational smelters to just six, of which only two are currently operating at full capacity. According to Meenan, Chinese overcapacity has had a direct negative impact on primary aluminum production in the U.S. and the main reason the industry has contracted in recent years.
To address some of these overcapacity issues, the U.S. aluminum industry has initiated several trade cases on a number of product forms coming out of China. In March, the U.S. International Trade Commission imposed antidumping and countervailing duties on Chinese aluminum foil. Then in June, the U.S. Department of Commerce announced its preliminary determination that imports of common alloy aluminum sheet from China were being dumped in the U.S., requiring U.S. importers of common alloy aluminum sheet from China to deposit estimated antidumping duties at the time of import.
Amid all of this, the Trump administration announced Section 232 tariffs on steel and aluminum imports. While the Aluminum Association applauded the Commerce Department’s findings on aluminum foil and common alloy sheet, it has mixed feelings about the 10 percent Section 232 tariff on aluminum.
“We very much think there is some action that needs to be taken on trade,” Meenan says, adding that the focus of any trade action needs to be on China and some of its satellite countries; not on vital trading partners in Canada and the EU. “We shouldn’t be penalizing these countries under Section 232, because we rely on some of those countries, particularly Canada, for our metal supply.”
So far, the Section 232 tariff has had a number of effects on the aluminum market. According to Mraz, prices are up, lead times are extended and its harder to find supply of certain product forms. As a result, TW Metals has increased inventory levels by about 10 percent.
“During these times, we’re seeing lead times move out, and in some cases, by gigantic leaps and bounds,” Mraz says. “What we’re doing as a hedge against that vacillation and the pushout in lead times is we’re buying more material and stocking it on the shelf now, against the chance that the mill is going to be late. Even though we’re able to very quickly fill in some holes, it still makes sense when consumption is up to keep inventories higher.”
Weekes, who thinks Section 232 will be a net positive for the industry, agrees that it has created some immediate supply issues. “232 has posed a big problem on supply,” he says, adding the biggest supply issues are with sheet and plate products.
Despite this, Weekes thinks the tariff will spur investment in U.S. aluminum production. “Getting more capacity in the U.S. is a must, and that’s basically what 232 is forcing the U.S. to do, which is a good thing,” he says. “Unfortunately, we’re all going to feel some pain, but at the end of the day, it’s going to help this country.”
Lee McCarter, CEO of JW Aluminum, Goose Creek, S.C., agrees a lack of investment domestically has led to decreased capacity of primary aluminum. He also sees Chinese overcapacity as a major problem and thinks Section 232, combined with other actions against aluminum products coming out of China, will incentivize U.S. aluminum producers to increase capacity.
“What you’re seeing is a renewed interest to invest domestically,” he says, citing JW’s own $250 million expansion as one example. The company is currently in the process of expanding its Mount Holly flat-rolled aluminum plant in Goose Creek – a project projected to add 175 million pounds of new capacity once completed sometime in 2020. “The combination of this new melting and casting technology with our existing rolling capabilities, together, will enable us to have one of the most competitive facilities in the world.”
With strong end markets and a healthy economy, the experts anticipate continued growth in the aluminum market at least through 2019.
“We continue to see demand growth, which is really good news, and all indications, with a healthy and robust economy, are that that should continue,” Meenan says. “We want to continue to see that demand profile growing, we want to continue to penetrate new markets and we don’t want a sort of artificially created supply challenge to upend any of that.”
McCarter agrees. “As long as there’s no significant disruption of the overall economy, we are expecting robust growth over the years to come.”