Aluminum Extrusion and Can Sheet Market Outlook

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Though we at MetalMiner tend to spend quite a bit of time talking about primary metals markets, the discussions and updates from industry participants in downstream markets offered to attendees at last week’s 3rd Annual Harbor Aluminum Conference provided some interesting insight into demand. Two of those end use segments we’ll examine today and these involve the aluminum extrusion and can sheet markets. We’ll start with aluminum extrusions. Lynn Brown, of Hydro shared a mixed bag of news covering the extrusion market. In particular he demonstrated the 50% drop in demand between 2008 and 2009 and went on to describe the extrusion market’s biggest end markets building and construction (55%) and transport (24%) with both markets still in recession, particularly trailers and semis (down from 300,000 units annually to 100,000 forecast for 2010).

Although both the building and construction and transport markets remain in recession, Hydro sees some positive signs. In particular, Lynn sees some progress on China extrusion anti-dumping cases, industry rationalization and capacity reductions and some growth coming from the solar/photovoltaic cell and wind markets. In addition, much of the building and construction demand works on a build-to-order model that favors domestic producers. And for the transport market, the domestic industry extrusion producers benefit from the JIT environment in which parts and components must ship. As another boost for extrusion growth, Hydro stated that 29 states have mandates to obtain minimum percentages of energy  from renewable sources which ultimately come from new projects for which extrusions play a role. The negative story, however, remains firmly in place¦a sluggish transport market (despite the move toward lighter/stronger vehicles typically a good sign for aluminum vs. steel) and what Hydro calls “The China Factor specifically the growth of Chinese extrusion market share in the US from 6% in 2006 to greater than 20% today. In sum, the extrusion market remains a mixed bag.

Contrast that end user industry with the can sheet market and the picture looks altogether different. According to Joe Sasso of JAS Consulting (Joe came from Rexam), the can sheet market operated at a fairly steady Eddy pace declining only 1.6% in 2009 from the previous year. The aluminum can market at just under 100 b pounds annually is expected to grow by 3.1% in 2010 according to Sasso. The main news within this end market involves the shift in supply from the domestic mills between 2009 and 2010. In particular, Alcoa and Novelis had the largest market share followed by Wise Metals and ARCO. In 2010 however, Wise takes a much larger market share by obtaining Anheuser-Busch volumes while exports have declined.

A second shift within the can sheet market involves pricing and the perceived balance of power between the can sheet mills (e.g. Alcoa, Novelis, ARCO, Wise etc) and the can makers (e.g. Crown, Rexam). The shift, like many in the metals industry, involved the nature of previous long term contracts in which one side ended up absorbing rising raw material costs while the other side had “locked into a longer contract. The balance of power has now shifted from the can makers back to the can sheet mills. When the old contracts expired, the can sheet producers moved off formula contracting toward ingot, conversion pricing and pass-throughs, much like many of the other metal industries we cover.

We will endeavor to continue covering aluminum downstream product markets.

–Lisa Reisman

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