US aluminum extrusion market sees surprising year-end strength

While the US aluminum extrusion segment is seeing surprising strength at year's end and many remelters are sold out for January, a few market players say they are uncertain how long the upturn will last.

Market players said low inventories and more demand from the automotive sector are behind the increased inquiries in extrusions and believe there may be more pent-up demand next year. Some are projecting Q1 demand will be 10-15% above Q1 2011 levels. And this comes as the building and construction market -- which accounts for about 25% of extrusion demand -- has been a laggard.

One extruder said he had one of his best booking months in November, but cautioned that he and others are "holding their breath" over 2012 demand.

"We are cautious looking ahead in this market," he said. "It will surge, then come back down. It's a roller coaster ride." He said he was booked out until the end of January. Lead times now are at four to six weeks, which he said was healthy "considering how depressed" business has been."

"We feel demand will come back in Q1 to the levels we saw in Q3 2011," another extruder said. "It will be good but not as strong as Q2 2011. We do forecast, though, that many of markets we serve" will improve going into Q2.

He said "assuming no significant economic setback," extrusion demand next year will be up 2-3% on the low side and 6-7% "if we can get all cylinders starting to hit at the same time in this country."

He said there had been no increase in demand from the anemic building and construction sector and expects that won't change for a year or two more.

"Overall we anticipate it being better [in 2012] than this year. However, it can quickly turn south if the global economic worries do not reverse and spill even more into the US," the other extruder said. Another extruder, who is predicting 2012 demand will rise 10-15%, said he saw a recent pickup in orders, but isn't sure whether its a year-end push or can be sustained through the first quater.

A billet remelter reported being sold out for January and had "no opportunity to do any spot sales." He said he had had calls this month from two Midwest extruders asking if he had any additional billet capacity. "This tells me that someone can't supply them. I think demand in 2012 is going to improve and be even better than 2011. There are a lot of indications in the economy that everything is trending in the right direction."

Jim Dickson, commercial director for North America at producer Rio Tinto Alcan, said that before November "we were starting to take on a negative view for 2012 -- mostly attributed to the overall decline in the economy. However, I'm happy to report that many customers in the extrusion market have a renewed sense of optimism for 2012."

He said that in last three to four weeks, inquiries have picked up, a development that is "uncharacteristic" of the market for this time of year.

Our January forecast is "stronger than I anticipated. I would say it will emulate January 2011," Dickson said. He added that his customers had taken their inventories "down to the bone. Quite frankly, we think 2012 is looking better, and we are ready, as always, to step up to the plate to serve this strategic market."

Dickson said his heat-transfer customers are reporting the continued conversion and use of aluminum in previous copper applications, and they report that this trend will continue in 2012.

Another official with a billet remelter agreed the billet market looks strong for 2012. "From what we can tell, the demand is increasing," said the official, who asked not to be identified. His company has "a full book" for next year, he said, adding, "We're in excellent shape in the first quarter." Overall, the official anticipates a good year for the billet market in 2012. "Our volumes with our customers are pretty much the same," he said.

The Platts 6063 spot billet upcharge was 9.5-10.5 cents/lb plus P1020, delivered Midwest, as of December 22, up from 9.25-10.5 cents on December 15. The upcharge ranged 9.25-13 cents throughout the year.

On the higher end of the market, a remelter said he was quoting spot at a "minimum" of 11.5 cents for spot billet, adding that "everyone lowered their inventory for year-end. I really anticipate a stronger market next year." He said in particular the truck/trailer and other automotive sectors are robust. "I am getting emails back within seconds" of checking on buying interest. "I anticipate selling out February soon," he added.

For 2012, contract upcharges have mostly settled at 9.5-12 cents plus Platts P1020 Transaction, delivered Midwest. Some extruders contracted for the same amount as this year, while others locked in less volume because of a lack of forward visibility. One remelter said he sold at upcharges ranging from 9.5 cents to 11 cents.