Aerospace Aluminum Demand Set to Ease Through 2010

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As we wrote earlier this week, aircraft construction rates are in a comparatively shallow decline (interesting how quickly we have come to consider a 13% decline from 2007 to 2009 as comparatively shallow) as orders are delayed or canceled. But industry experts AeroStrategy expect the market to pick up from 2014 although this will be set against a backdrop of composite replacement for aluminum in new designs like the Boeing 787. AeroStrategy is predicting growth rates for aluminum of just 3.9% up to 2019 compared to 8.5% for titanium and 9.7% for composites. Nevertheless, before aluminum aerospace distributors start closing up shop in despair they should note that from the 2009 trough even these growth rates will lead consumption from 427m pounds in 2009 to nearly 600m pounds by 2019.

One of the more significant demand unknowns that AeroStrategy have highlighted is Bombardier’s short haul C110/C130 commuter jet consumption of aluminum-lithium alloys although 20% of the aircraft weight will be in composites. But production of the C series has just been pushed back from 2010 to 2013 in part because Bombardier feels new engine designs on the drawing board would give them a 4-8% better economy (and partly no doubt by the uncertainty in the current sales market).

In the short term, the demand drivers will continue to come from the Boeing 727 and Airbus A320 families. These two planes, in their various versions make up 60% plus of all general aviation aircraft built. Even when the 787 production ramps up in 2011 and beyond the impact will not be as great as an equivalent number of 747’s because of the very significant composite content. At 156 tons zero fuel weight a 787 still weighs less than an A330 and consumes less aluminum. The swing volume will be the Airbus A380 at 361 tons zero fuel weight. One A380 will be equivalent to six 737 or A320 aircraft. Even on limited production runs of 20-30 a year it’s impact will be significant, sucking metal from US and European producers. Figures courtesy of Airbus and Boeing websites.

Don’t take Rio’s attempts to sell it’s Alcan Engineered Products aerospace division which it acquired in 2007 and comprises Europe’s largest aerospace plate and extrusion manufacturing group as a lack of faith in the aerospace market. Buyers have been hard to find though as funding has proved challenging in a debt constrained market according to Bloomberg. The sale probably points more to Rio’s desperate attempts to reduce its own debt mountain than to a lack of belief in the future of the aerospace market, but a year ago buyers would have been lining up.

Most industry insiders say the wider aluminum supply chain is depleted as distributors have run down inventories. Both base metal (LME) and mill conversion premiums (to take ingot to plate, extrusion or forging) have come off as demand has slackened. This hasn’t been the case for aerospace as demand has held up until now but is likely to ease this year and next. The knock on effect could be a further softening of producer premiums for commercial plate and heavy extrusions as mills previously enjoying full aerospace order books look to top up any shortfall in the commercial markets.

–Stuart Burns

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