Aluminum Seen Winning Ground Over Steel, Copper

Aluminum demand is strong despite record-high inventories of the metal, and will be further buoyed in coming years by increased usage in the automotive and aerospace industries, where it is winning ground over steel and copper in a bid to lightweight vehicles and products, participants at CRU's World Aluminum congress in London said.

"Demand's a great story," said Tim Reyes, president, Alcoa Materials Management, part of aluminum producer Alcoa Inc. (AA), which is investing heavily in expanding its rolling and processing facilities, even while considering cuts to its primary metal production capacity amid global oversupply. Processor Aleris International Inc. and smelting and processing group Hindalco Industries Ltd. (500440.BY) of India are also investing in downstream production capacity in a bid to meet demand which is expected to grow eightfold in the next decade in segments such as autobody sheet.

Global consumption of aluminum is expected to continue growing for three to four years at the current rate of 6% annually, led by China, up from 5% growth in 2012 when total usage reached 47.26 million metric tons, according to CRU. Growing demand should help whittle down global stockpiles of as much as 12 million tons, as some aluminum producers cut metal production amid weak prices.

"Demand [for aluminum] is the bright spot; it's growing faster than for the other major metals," said CRU Strategies managing consultant Colin Pratt. "This is because of lightweighting in cars and aeroplanes and rapid growth in emerging markets. Aluminum is going into wheels, radiators, engines, including in luxury cars, and replacing steel in body panels."

Aluminum usage is booming in automobiles and aeroplanes due to legislative drivers to reduce emissions and increase fuel efficiency, said Philippe Meyer, vice-president and chief technology officer of Aleris Rolled Products Germany GmbH, an aluminum rolled and extruded products producer.

"In the U.S. the Cafe legislation will introduce mileage targets [per liter of fuel for cars] to reduce emissions by 2016 and we will have the same kind of norms in the EU in coming years, and there's similar moves in India and China," Mr. Meyer said. "Aluminum autobody sheet consumption will multiply eight times over the next ten years."

Current global consumption of autobody sheet is around 350,000 tons a year and the expected expansion will need to be supported "with active investment," he said. Aleris is currently investing $200 million in expanding capacity to meet demand, including in a new aluminum cold rolling plant in Belgium.

Alcoa is investing $300 million in a new automotive sheet production facility in Iowa and $275 million in a similar facility in Tennessee to meet North American demand that should quadruple by 2015, Mr. Reyes said. Alcoa is also investing in automotive sheet production at Ma'aden, a joint venture with the Saudi Arabian government, he said.

Despite the emergence of ultralight steels for automotive applications, aluminum is winning ground against steel among some car producers. "We're coming in with a hurricane on aluminum, " Adrian Tautscher, a project leader at Jaguar/Land Rover, told the congress. Steel rivets will nonetheless stay in cars, he said.

The aircraft industry meanwhile currently uses some 360,000 tons a year of aluminum extruded products and this will grow 5% a year over the next five years as manufacturers also seek to reduce weights and boost fuel efficiencies, Mr. Meyer said.

Urbanization in emerging nations is also boosting aluminum demand, CRU said. In India, demand for the metal is growing 11% to 12% a year--similar to annual growth rates for aluminum in China-- particularly due to rapid electrical sector growth as new aluminum-bearing transmission lines are built, said Hindalco's chief marketing officer, Sachin Satpute.

"In India, the economy is growing 6% to7% a year, and aluminum consumption is growing way above this because the power industry is growing 12% to 15% a year, and that's still not enough [to meet infrastructure demand]" Mr. Satpute said.

Hindalco is investing $9 billion to boost alumina output and triple its primary aluminum capacity to 1.8 million tons a year in an expansion to be completed 2015, which will also involve new rolling mill capacity to meet demand from sectors including energy, transport and packaging.

"Aluminum will be growing faster than copper at Hindalco," said the executive of the Indian diversified industrial group.