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Aleris mulls US expansion to meet resurgent auto demand

By: | at 03:05 PM | Channel(s): International Trade  

Aleris International is considering expanding its automotive aluminum capacity in the United States, Chairman and Chief Executive Steven Demetriou said, the latest sign that the resurgent auto sector is helping offset continued sluggish construction and packaging use.

His upbeat outlook comes as the aluminum industry struggles with weak London Metal Exchange (LME) prices, which are close to or below the cost of many smelters’ production, as well as surplus global output capacity and a shortage of scrap metal.

A switch by automakers to use lightweight aluminum in place of steel is the “biggest opportunity since the 1970s”, when beer can makers switched metals, Demetrious told delegates at the Platts aluminum symposium.

At the Detroit auto show, Ford unveiled its revamped F-150 pick-up truck, which will have a body and load bed made almost entirely of aluminum, the first of its kind for a big-volume vehicle. The move was seen as a major victory for the aluminum market as it battles to gain market share from lower-priced but heavier steel.

Legislation requiring deep cuts in U.S. and Europe auto fuel efficiency are forcing carmakers to reduce the weight of vehicles. Growing demand for vehicles in emerging economies such as India and China is also driving the market.

“The industry is looking at how to capitalize on this. We are looking at new capacity in the U.S. for this growth,” he said.

He would not comment any further on the plans, but he suggested that Aleris may be looking to secure a long-term partnership with a major automaker. Car makers needing auto body sheet produced at hot-rolling mills will need local capacity, he said.

“This is not a ‘build it and they will come’” he said. Aleris has recently completed an expansion of its rolling mill in Duffel, Belgium.

On the flip side, the steel industry is developing new high-tech products in a long war to defend its share of the auto sector against aluminum, which is more expensive but a third of the weight of conventional steel.

But aluminum firms see significant room for growth, as analysts say the metal accounts for only about 8 percent of the weight of a typical car versus nearly 60 percent for steel.

The outlook will foster growing confidence about the auto sector, as overcapacity in packaging forces companies to retreat from making lower-margin products like foil.

Novelis, the world’s No. 1 flat-rolled products maker, sold its North American foil business last November and United Co Rusal last week warned about overcapacity in packaging in Russia when it reported a massive $2 billion net loss in the fourth quarter.

In a greater focus on automotive markets, Novelis has commissioned two new automotive sheet finishing lines in Oswego, New York and is also building a auto sheet finishing plant in Changzhou, China which will go into production in the middle of this year with capacity of 120,000 tons per year.

The upbeat outlook for the downstream aluminum market is striking compared with the U.S. primary market which is struggling to compete with lower-cost producers in the Middle East even after the oil shale revolution has slashed energy costs, a big portion of output costs. (Reuters)