Outlook 2017: Can value added applications turn the table for aluminium?

The year 2016 is marked by a distinct shift towards value added applications in aluminium.  Aluminium producers around the world fought out to find ways and means to survive the slump in the commodity market. Cost cutting and energy efficiency along with value added applications became the priorities for aluminium makers. Despite the bearish metal market, aluminium demand situation remained buoyant, especially because of the growing automotive and aerospace market.  Downstream sector invested in expansion, divestment and merger & acquisition to capitalize on the growing end –user demand.  Now is the time to watch out for whether these new strategies and plans will lead the industry towards the expected results or not.

Automotive and aerospace sector to drive aluminium demand

Aluminium in the global automotive industry is forecast to grow at a CAGR of 7.4% from 2015 to 2020 which indicates a steady growth of the same to continue in 2017. The increasing Corporate Average Fuel Economy (CAFE) targets in Europe and USA has resulted in a substantial change in engineering methods and use of materials.  The growing demand for lightweight, fuel efficient vehicles, and better price performance ratio of aluminium compared to other lightweight materials have driven the growth in the use of aluminium in automotive sector. The year is expected to see an increasing use of aluminium in chassis and structural applications and advanced manufacturing technology.

In this market, cast aluminium, rolled aluminium, and extruded aluminium are some of the major product forms used for automotive applications. Demand for cast aluminium would remain strong and the demand for rolled aluminium is likely to experience growth in 2017 supported by growing application of rolled aluminium in automotive structural components. Along with North America and Europe, Asia Pacific (APAC) is expected to remain the largest market for automotive aluminium due to increase in the passenger car and light commercial vehicle production in China and India.

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Aluminium alloy is the perfect choice for manufacturing aircraft body parts and engines due to its corrosion resistant, high strength, less expensive qualities. Other than casting, due to the use of 3D printing in aluminium processing procedure, the use of aluminium in manufacturing aircraft parts will increase manifold. A number of companies are investing and expanding to cater to the demands from companies like Boeing and Airbus.

Packaging demand is expected to stay flat in the coming year. In the fast moving developing economies like India and China, construction sector would be playing a significant role in driving aluminium demand.  

The Impact of Chinese semi-finished Aluminium

Chinese manufacturers have already entered the value added segment of aluminium. The impact the Chinese value-add product manufacturers would be having on western firms that previously had exclusive supply share for automotive and aerospace and packaging market would be an issue to look out for in 2017.

Over the last one decade, the country has invested heavily in European and Japanese extrusion, rolling and heat treatment plants and equipment to improve the quality of their semi-finished products. The products are still sold at a discount rate to European or North American OEMs and their growing acceptance, particularly in terms of quality would remain a concern for manufactures in the west.  A number of Chinese mills are already working on gaining Boeing and Airbus approval to enter this lucrative market.

Companies to look out for in 2017

Constellium

Constellium has heavily invested on the automotive and aerospace sector throughout 2016 and they have a bright outlook for 2017. Constellium announced the official opening of the new state-of-the-art 100k metric ton auto body sheet finishing line at its Neuf-Brisach, France facility and another 100k metric ton auto body sheet manufacturing plant in Bowling Green, Kentucky in cooperation with UACJ Corporation. The ramp up will be taking place over the next two years.

Commenting on the third quarter 2016 results, Jean-Marc Germain, Constellium’s Chief Executive Officer said: “I am also pleased by the on-time completion and commissioning of our body-in-white finishing lines in both Europe and the U.S. Looking forward, we expect typical seasonal softness in the fourth quarter of 2016, followed by a stronger 2017, as we execute our plan and take advantage of attractive long-term fundamentals.”

Arconic

Lightweight metals leader Alcoa completed the demerger of Alcoa and Arconic and Alcoa Corporation (the upstream business) spun off from its parent company Alcoa Inc- now named and listed as Arconic Inc (ARNC), its Value-Add company.

Arconic’s largest and fastest growing market is aerospace, where they have had a major presence since the beginning. According to Arconic, they are well-positioned to benefit from that growth with a range of high performance multi-materials and highly engineered products and solutions for aero engines and airframe structures on virtually every aircraft platform.

Arconic’s lightweight alloys and aluminum sheet solutions are meant for use from bumper to bumper in automobile.  Arconic is set to lead the way with breakthrough products and technologies, like lightweight, more formable Arconic Micromill™ aluminium and other products.

China Jhangwang & Aleris

The most surprising and unexpected development in 2016 was when Chinese aluminum entrepreneur Liu Zhongtian of China Zhongwang announced the acquisition of  Aleris Corp. U.S. for $2.3 billion in September 2016. The deal gives the owner of Asia’s largest producer of extruded aluminium a smooth access to American and European technology, as well as the market which is dominated by high profile buyers Boeing Co. and automakers such as Audi.  Aleris has already been a top supplier to Boeing and this association is one crucial aspect which is going to change the dynamics in a sector in which Western firms  had relatively little competition outside the US and Europe.

Hindalco Novelis

For Novelis, Inc, a world leader in rolled aluminium products, automotive sheet business would continue to remain the biggest growth driver in 2017. The company already commissioned its third finishing line in Oswego, lake Ontario, to manufacture high-strength aluminium alloy for Ford's new F-Series super duty line of trucks. Novelis strategic partnership with the likes of Jaguar Land Rover and Audi is expected to earn revenue for the company in 2017 too.

Demand growth estimates for the automotive and the aerospace sector have helped support substantial investment by firms like Aleris, Alcoa and others to meet anticipated demand in near future. The arrival of the Chinese in the downstream has the potential to upset the western investments to a certain aspect.  The U.S.-based aluminium organizations like Aluminum Extruders Council are of the view that Zhongwang’s takeover of Aleris “raises very serious concerns for the entire aluminum industry,” and they are trying to restrict Chinese penetration by pressuring policy makers for investigations and trade restrictions. 2017 will unfold how the industry is going to find a solution to this conflict between East and West.

We hope to come up with a clear outlook once the major downstream companies release their fourth quarter and the full year results.