Much of the focus to last week’s announcement by the Obama administration that a national program has been agreed to raise automobile fuel consumption by 30 percent was around the way the various parties had been bought together after so many years of acrimony and argument. Though politically this was interesting, we at MetalMiner are more interested in how the program is likely to impact metals consumption between now and 2016, the backstop to the current program.
While you may believe from all the advertisements in the media that most vehicles are required to achieve at least 35mpg already, the reality is the national target is only 27.5 mpg for cars and 24 mpg for light trucks and SUV’s. According to MSNBC, the industry is actually averaging 32.6 mpg for cars and currently some 130 models are said to exceed 30mpg so the target looks readily attainable. The first models to be impacted will be from 2012 giving the industry time to adjust and targets will be raised in steps up to 2016.
Critics have said it will add $1300 per vehicle although only $600 is due to the Obama targets ($700 was already in the pipeline from changes the Bush administration had enacted). In reality how much will it cost? Possibly more, one Reuter article quoted a source as estimating between $5,000 and 12,000 per vehicle! It’s difficult to judge but new platforms are seriously expensive to develop and larger sedans will have to undergo some radical re-design to approach the targets. So yes there will be a cost, but how much remains to be seen. Car-makers can draw on existing weight saving concepts used in Europe and Japan, they don’t have to re-invent the wheel.
What we can say is the improvements will come through a combination of lower weight and better engine efficiency. Lower weight will require better design enabling manufacturers to achieve rising safety standards with thinner panels and new materials. An increase in the use of lower weight materials is an almost certainty. Considerable strides have already been taken in using high strength steels and aluminum for body panels and cast or forged parts in engines, suspension and transmissions. As an example, last year we reported that the new Mazda2 is 200 lbs lighter than the previous model yet roomier, better equipped and safer according to thecarconnection.com so it can be done.
In March, the Aluminum Association released the results of a study that shows the use of automotive aluminum globally is at an all-time high, averaging 7.8 percent of the average worldwide light-vehicle curb weight in 2009. The study covered all forms of the metal — rolled products, castings, extrusions and forgings. The study predicts that growth will continue at a rate of four-to-five pounds per vehicle, per year, and approach 300 pounds per vehicle worldwide in 2020.
As we have said before, America won’t suddenly turn its back on big cars but there may, as has been the case in the UK, a gradual acceptance of smaller sedans and SUV’s, and an increase in hybrid and diesel engines. Analysts quoted in Reuters have said they expect to see a rise in copper consumption as more sophisticated electric motors are required on hybrid and electric vehicles. Others have said an increase in castings for turbocharger bodies and components are likely. Charles Bradford of Affiliated Research Group expected the steel content in vehicles to drop, mostly through a combination of thinner high strength alloys, smaller vehicles, re-design and substitution. Aluminum and plastic usage would rise, not just for body panels but suspension, in engine components and even drive trains. The mills most exposed to the automotive sector will continue to face a short term lack of demand but may also face a longer term lower level of growth compared to the rest of the industry as steel substitution and a reduction in vehicle size impacts volumes. The mills most exposed to this are mentioned in the article as Arcelor Mittal, US Steel and AK Steel Holding, all of whom are struggling in the face of a collapse in demand.
We’ll continue to cover additional metal developments in terms of the automotive industry later this week.