Where Is Aluminum Headed?

Where Is Aluminum Headed?

Both optimism and caution about the metal’s outlook were voiced by speakers at ISRI’s Aluminum Roundtable.

There were other words of caution. While a vast international market for aluminum is growing and may offer "substantial opportunities," said one of the speakers, it could also present "significant risks." Another speaker warned that "volatility is here to stay-we can't wish it away. " And a secondary smelter executive evoked the ecological problems challenging members of the aluminum industry. All seemed to underline the continued need for scrap, however, in the 1990 market.

Producer Sees Positive Signs

Donald Worlledge, president and chief operating officer of Ravenswood Aluminum Corp. (Ravenswood, W.Va.), noted some encouraging trends emerging in the aluminum industry:

Major aluminum companies--including Alcoa, Alcan, and Reynolds-are spending billions of dollars to modernize and increase rolling capacity. For instance, plans recently announced by Germany's Alunorf (a joint venture of VAW and Alcan) to increase capacity by 1.5 billion pounds per year represent "almost 20 percent of the U.S. consumption of flat-rolled products of 1989," he said. These programs, Worlledge declared, should lower costs and improve quality.

Major packaging companies are consolidating and preparing to compete in a world market. This, he said, will increase demand for aluminum for cans and other uses.

Meanwhile, he noted, primary aluminum capacity is not growing fast enough to supply this projected aluminum consumption. Some smelting projects have been delayed and, Worlledge said, "new smelters and aluminum plants simply can't be built fast enough to meet a normal growth in demand."

Overall, he foresees continued growth in aluminum, but noted that the major increases will be seen overseas. "aluminum prices," he said, "will continue to be driven up due to rising demand, rising energy costs, and high capital costs for new smelters." Demand for scrap will increase, Worlledge added, "due to insufficient new primary capacity," as well as environmental and economic factors.

Aluminum Challenges in the 1990s

Looking at aluminum from a die-caster's perspective, T.L. Tozzini, vice president, Doehler-Jarvis (Toledo, Ohio), focused on what he saw as the three vital challenges of the 1990s: market volatility, quality, and growth opportunities. Barring a deep economic recession, Tozzini said, "the fundamental balance of supply and demand in the aluminum industry is healthy ... and will remain so into 1992."

Noting that the secondary ingot and scrap markets "have no terminal market counterpart or other hedging medium," Tozzini said that volatility must be accepted. I in the 1990s," he added, "winners and losers will be distinguished by their ability to manage for stability in an increasingly volatile market.”

Quality comes into play, he said, because the major user of die castings--the automotive industry--is "one of the most quality-conscious in the world." But it is not only the automotive industry that's putting pressure on quality, he pointed out. "In truth, we are forced not by our automotive customers, but by the very global marketplace in which they compete," Tozzini said, adding that "processed scrap is an end product for some and raw material for others ... as such, it must meet many of the same rigorous quality demands as our products.”

As for growth opportunities, the die-cast executive indicated that between 1976 and 1989, use of aluminum castings in automobiles grew from approximately 65 pounds to 120 pounds per vehicle. More growth is expected, he said, perhaps to more than 175 pounds of aluminum castings per car. In total pounds of castings used by the U.S. auto industry, he stated, "this represents a growth from approximately 900 million pounds in 1989 to 1.45 billion pounds by 2000."

Changing International Market Scene

Offering an international trader's viewpoint, Michael Newman, vice president, Hydro Aluminum (Louisville, Ky.), pointed to three principal interrelated changes affecting the aluminum industry: communications, production and consumption patterns, and international pricing and the global market.

The first was caused by technological advances--fax machines, computers, direct dialing overseas--that have speeded the flow of information but, "at the same time, forced us to react faster to this information," Newman said.

Changes in consumption and production patterns are obvious, he indicated. "The high cost of energy has closed down much of the Japanese smelter capacity and may have a similar effect in much of Europe. We are also seeing the closing down of reduction plants in Eastern Europe due to ecological and financial factors," he said. He questioned what might happen to use of capacity if aluminum were to go back to 75 cents per pound.

As far as consumption is concerned, there have been "substantial" increases in Korea and Taiwan, the speaker pointed out, asking, "How long will it be before mainland China gets its act together?” If the consumption level continues to rise at a time when production is reduced, Newman asked where will the metal come from?

Discussing price fundamentals, Newman said that the London Metal Exchange's (LME) dollar price is the most "relevant" pricing medium existing today. With LME planning to establish warehouses in the United States next Year, he foresees "a considerable impact on our business" and the emergence of a "different business pattern for most of us."

Secondary Smelters Face Pressures

Ecology is having a major impact on the secondary aluminum smelting industry, according to Stuart A. Cohn, president, Behr Nonferrous Metals Inc. (Rockford, M.). Cohn reported on the various compliance factors impinging on the industry and the need to ensure that a company's customers are diligent in preventing all potential environmental problems. That factor alone has made the industry dramatically different than the one that existed 15 to 20 years ago when the first Aluminum Roundtable was held, he said.

A second important change seen over this same time period is in the "quality of scrap coming into our plants, and in the ingot going out," Cohn said, indicating that scrap quality, to some extent, has deteriorated. On the other hand, he emphasized, ingots moving to secondaries' customers must be exact to specification or they will be rejected.

Another change is in the area of credit. "Fifteen years ago, we sold millions of dollars of material without looking at a company's statement," he said. "Today, before we sell to a new customer, we must see a balance sheet, a current statement, and several trade references that verify past payment practices."

Examining what he called "the enigma of the market," Cohn predicted slower U.S. business but "increased export demand for ingot."

Examining a Bearish Scenario

"I have chosen to make my bearish case using the most optimistic assumptions consistent with current reality," said Peter W. Merner, president, Merner Research (New York City). The analyst admitted that he was swimming against the mainstream but stuck to his message that "a reasonable economic growth overseas, coupled with a mild recession in the United States, is not going to provide enough demand stimulus to prevent the primary producers from being put through the wringer again."

Merner made his case through a slide presentation that showed price levels falling in 1991, forcing production cutbacks. Looking back to the first half of 1990, he said that "aluminum clearly had already dug itself into something of a pit by midyear, " adding, "if aluminum were the only barometer, North America would have to have been considered in recession since late 1988." (It must be remembered, however, that the LME price of aluminum had escalated to nearly $1 per pound by the time Merner addressed the roundtable.)

Richard Mandel, Mandel Metals Inc. (Chicago), moderated the roundtable along with Bill Monaghan, Wabash Alloys (Cleveland). Ronald Rosenson, Behr Precious Metals Inc. (Rockford, Ill.), and chairman of ReMA's nonferrous metals committee, opened the meeting and welcomed the attendees.

[SIDEBAR]

Tackling the Aluminum-Lithium Problem

The complexity and difficulties involved in the handling of aluminum-lithium alloys, and steps taken to keep them separate so as not to contaminate other scrap, were some of the principal topics discussed at the Aluminum-Lithium Seminar. The seminar, which was held in Chicago in conjunction with the Aluminum Roundtable, was sponsored by ReMA and the Aluminum Association.

Joseph Viland, Wabash Alloys (Wabash, Ind.), chaired the session. Speakers included R. Steve James of Alcoa (Alcoa Center, Pa.), James M. Creel II of Reynolds

Metals Co. (Richmond, Va.), W. Roger Wilson of Banbury Laboratories, Alcan International Ltd. (Banbury, Oxon, England), and Elliot Willner of Lockheed Missiles and Space Co. (Sunnyvale, Calif.).

“Alcoa believes world demand for aluminum-lithium alloys will increase from 300,000 pounds in 1990 to 9 million pounds in 1999,” James said, noting that these alloys will become part of the scrap market in 1990, but will become an increasing scrap factor in the following years.

All speakers devoted considerable time to discussing the need to avoid contamination through proper segregation and separation of aluminum-lithium alloys. Willner reported that Lockheed maintains orange 55-gallon covered drums in all of its manufacturing areas and at its aluminum subcontractors to collect the alloyed scrap, which is returned to Lockheed for staging and disposal.

Creel informed attendees that Reynolds “processes scrap from aluminum-lithium ingot rolling operations back into new ingots to make aluminum-lithium plate.” And Wilson indicated that aluminum-lithium alloys have “posed a new challenge to the recycling industry due to the high cost of lithium, its high reactivity to the atmosphere and to refractories, and its absence from the specifications of all other registered alloys.”

Where Is Aluminum Headed?

Both optimism and caution about the metal’s outlook were voiced by speakers at ISRI’s Aluminum Roundtable.

There were other words of caution. While a vast international market for aluminum is growing and may offer "substantial opportunities," said one of the speakers, it could also present "significant risks." Another speaker warned that "volatility is here to stay-we can't wish it away. " And a secondary smelter executive evoked the ecological problems challenging members of the aluminum industry. All seemed to underline the continued need for scrap, however, in the 1990 market.

Producer Sees Positive Signs

Donald Worlledge, president and chief operating officer of Ravenswood Aluminum Corp. (Ravenswood, W.Va.), noted some encouraging trends emerging in the aluminum industry:

Major aluminum companies--including Alcoa, Alcan, and Reynolds-are spending billions of dollars to modernize and increase rolling capacity. For instance, plans recently announced by Germany's Alunorf (a joint venture of VAW and Alcan) to increase capacity by 1.5 billion pounds per year represent "almost 20 percent of the U.S. consumption of flat-rolled products of 1989," he said. These programs, Worlledge declared, should lower costs and improve quality.

Major packaging companies are consolidating and preparing to compete in a world market. This, he said, will increase demand for aluminum for cans and other uses.

Meanwhile, he noted, primary aluminum capacity is not growing fast enough to supply this projected aluminum consumption. Some smelting projects have been delayed and, Worlledge said, "new smelters and aluminum plants simply can't be built fast enough to meet a normal growth in demand."

Overall, he foresees continued growth in aluminum, but noted that the major increases will be seen overseas. "aluminum prices," he said, "will continue to be driven up due to rising demand, rising energy costs, and high capital costs for new smelters." Demand for scrap will increase, Worlledge added, "due to insufficient new primary capacity," as well as environmental and economic factors.

Aluminum Challenges in the 1990s

Looking at aluminum from a die-caster's perspective, T.L. Tozzini, vice president, Doehler-Jarvis (Toledo, Ohio), focused on what he saw as the three vital challenges of the 1990s: market volatility, quality, and growth opportunities. Barring a deep economic recession, Tozzini said, "the fundamental balance of supply and demand in the aluminum industry is healthy ... and will remain so into 1992."

Noting that the secondary ingot and scrap markets "have no terminal market counterpart or other hedging medium," Tozzini said that volatility must be accepted. I in the 1990s," he added, "winners and losers will be distinguished by their ability to manage for stability in an increasingly volatile market.”

Quality comes into play, he said, because the major user of die castings--the automotive industry--is "one of the most quality-conscious in the world." But it is not only the automotive industry that's putting pressure on quality, he pointed out. "In truth, we are forced not by our automotive customers, but by the very global marketplace in which they compete," Tozzini said, adding that "processed scrap is an end product for some and raw material for others ... as such, it must meet many of the same rigorous quality demands as our products.”

As for growth opportunities, the die-cast executive indicated that between 1976 and 1989, use of aluminum castings in automobiles grew from approximately 65 pounds to 120 pounds per vehicle. More growth is expected, he said, perhaps to more than 175 pounds of aluminum castings per car. In total pounds of castings used by the U.S. auto industry, he stated, "this represents a growth from approximately 900 million pounds in 1989 to 1.45 billion pounds by 2000."

Changing International Market Scene

Offering an international trader's viewpoint, Michael Newman, vice president, Hydro Aluminum (Louisville, Ky.), pointed to three principal interrelated changes affecting the aluminum industry: communications, production and consumption patterns, and international pricing and the global market.

The first was caused by technological advances--fax machines, computers, direct dialing overseas--that have speeded the flow of information but, "at the same time, forced us to react faster to this information," Newman said.

Changes in consumption and production patterns are obvious, he indicated. "The high cost of energy has closed down much of the Japanese smelter capacity and may have a similar effect in much of Europe. We are also seeing the closing down of reduction plants in Eastern Europe due to ecological and financial factors," he said. He questioned what might happen to use of capacity if aluminum were to go back to 75 cents per pound.

As far as consumption is concerned, there have been "substantial" increases in Korea and Taiwan, the speaker pointed out, asking, "How long will it be before mainland China gets its act together?” If the consumption level continues to rise at a time when production is reduced, Newman asked where will the metal come from?

Discussing price fundamentals, Newman said that the London Metal Exchange's (LME) dollar price is the most "relevant" pricing medium existing today. With LME planning to establish warehouses in the United States next Year, he foresees "a considerable impact on our business" and the emergence of a "different business pattern for most of us."

Secondary Smelters Face Pressures

Ecology is having a major impact on the secondary aluminum smelting industry, according to Stuart A. Cohn, president, Behr Nonferrous Metals Inc. (Rockford, M.). Cohn reported on the various compliance factors impinging on the industry and the need to ensure that a company's customers are diligent in preventing all potential environmental problems. That factor alone has made the industry dramatically different than the one that existed 15 to 20 years ago when the first Aluminum Roundtable was held, he said.

A second important change seen over this same time period is in the "quality of scrap coming into our plants, and in the ingot going out," Cohn said, indicating that scrap quality, to some extent, has deteriorated. On the other hand, he emphasized, ingots moving to secondaries' customers must be exact to specification or they will be rejected.

Another change is in the area of credit. "Fifteen years ago, we sold millions of dollars of material without looking at a company's statement," he said. "Today, before we sell to a new customer, we must see a balance sheet, a current statement, and several trade references that verify past payment practices."

Examining what he called "the enigma of the market," Cohn predicted slower U.S. business but "increased export demand for ingot."

Examining a Bearish Scenario

"I have chosen to make my bearish case using the most optimistic assumptions consistent with current reality," said Peter W. Merner, president, Merner Research (New York City). The analyst admitted that he was swimming against the mainstream but stuck to his message that "a reasonable economic growth overseas, coupled with a mild recession in the United States, is not going to provide enough demand stimulus to prevent the primary producers from being put through the wringer again."

Merner made his case through a slide presentation that showed price levels falling in 1991, forcing production cutbacks. Looking back to the first half of 1990, he said that "aluminum clearly had already dug itself into something of a pit by midyear, " adding, "if aluminum were the only barometer, North America would have to have been considered in recession since late 1988." (It must be remembered, however, that the LME price of aluminum had escalated to nearly $1 per pound by the time Merner addressed the roundtable.)

Richard Mandel, Mandel Metals Inc. (Chicago), moderated the roundtable along with Bill Monaghan, Wabash Alloys (Cleveland). Ronald Rosenson, Behr Precious Metals Inc. (Rockford, Ill.), and chairman of ReMA's nonferrous metals committee, opened the meeting and welcomed the attendees.

[SIDEBAR]

Tackling the Aluminum-Lithium Problem

The complexity and difficulties involved in the handling of aluminum-lithium alloys, and steps taken to keep them separate so as not to contaminate other scrap, were some of the principal topics discussed at the Aluminum-Lithium Seminar. The seminar, which was held in Chicago in conjunction with the Aluminum Roundtable, was sponsored by ReMA and the Aluminum Association.

Joseph Viland, Wabash Alloys (Wabash, Ind.), chaired the session. Speakers included R. Steve James of Alcoa (Alcoa Center, Pa.), James M. Creel II of Reynolds

Metals Co. (Richmond, Va.), W. Roger Wilson of Banbury Laboratories, Alcan International Ltd. (Banbury, Oxon, England), and Elliot Willner of Lockheed Missiles and Space Co. (Sunnyvale, Calif.).

“Alcoa believes world demand for aluminum-lithium alloys will increase from 300,000 pounds in 1990 to 9 million pounds in 1999,” James said, noting that these alloys will become part of the scrap market in 1990, but will become an increasing scrap factor in the following years.

All speakers devoted considerable time to discussing the need to avoid contamination through proper segregation and separation of aluminum-lithium alloys. Willner reported that Lockheed maintains orange 55-gallon covered drums in all of its manufacturing areas and at its aluminum subcontractors to collect the alloyed scrap, which is returned to Lockheed for staging and disposal.

Creel informed attendees that Reynolds “processes scrap from aluminum-lithium ingot rolling operations back into new ingots to make aluminum-lithium plate.” And Wilson indicated that aluminum-lithium alloys have “posed a new challenge to the recycling industry due to the high cost of lithium, its high reactivity to the atmosphere and to refractories, and its absence from the specifications of all other registered alloys.”