ANALYSIS - US auto sector aluminum demand to fall in '01
Date: 31-Aug-01
Country: USA
Author: Zach Howard
News this month that auto giant Ford Motor Co. was eliminating 5,000 jobs, slashing earnings forecasts and considering cutting production highlighted the auto sector's woes as U.S. manufacturing struggles in a sector recession.
However, once the economy rebounds from its sluggish pace, analysts see automotive aluminum use rising again over the next two years, especially with anti-pollution laws tightening and consumers demanding more fuel efficiency from their vehicles.
Aluminum has gradually been replacing steel in auto manufacturing. But this trend will only partly offset a fall in aluminum shipments from primary smelters and mills as the rate of U.S. auto sales and production decelerates from a record high level last year.
Overall aluminum shipments during 2001 will slide about 8.5 percent to 22.4 billion pounds, from 24.5 billion pounds in 2000, according to a quarterly aluminum bulletin issued by BB&T Capital Markets this week.
"We estimate that the U.S. auto industry will consume 4.84 billion pounds of aluminum this year, down 6.4 percent from 2000," Lloyd O'Carroll, chief economist at Richmond, Virginia-based BB&T, said in the report.
One reason for the lag is because domestic producers of cars and trucks, including sport utility vehicles (SUVs), are losing market share to foreign auto makers, especially Japanese companies, and consumers are choosing lighter, more fuel-efficient vehicles, analysts said.
Additionally, U.S. auto makers spent much of early 2001 de-stocking inventories, and that, coupled with slower sales during the economic downturn, put a dent in metal shipments.
"What that means is lower demand for aluminum from automobile makers this year - no doubt about it," aluminum analyst James Southwood, President of Commodity Metals Management in Pittsburgh, told Reuters.
The transportation sector - aluminum's biggest U.S. end-use market - is expected in 2001 to show an estimated 12 percent rate of decline in aluminum use, according to BB&T Capital.
Cars and light trucks compose the biggest market in the transportation sector, which also includes heavier trucks, trailers, recreational vehicles and aircraft.
"Aluminum shipments to light vehicles are projected to be down 6 percent, as an 8 percent decline in North American vehicle production is mitigated somewhat by an increase in the pounds of aluminum per vehicle," said BB&T's O'Carroll.
OPTIMISM FOR FUTURE ALUMINUM DEMAND FROM AUTO SECTOR
The U.S. automotive sector has managed to post its third-best year in history in 2001, although sales and output wilted from last year's more robust levels.
Total U.S. auto sales this month hovered at a rate of about 16.0 million units, compared with last year's record-high rate of around 17.1 million.
O'Carroll forecast aluminum shipments would rise 9 percent in 2002 and 7 percent in 2003.
And analysts remain optimistic that as the economic gloom lifts in the United States in 2002, aluminum consumption will increase at Detroit's Big Three auto makers - Ford, General Motors and the Chrysler Group unit of DaimlerChrysler .
One expert on aluminum and the auto market said intense pressure to reduce environmentally-harmful emissions and improve gas mileage would increase demand for the lightweight metal.
"I think over the next few years, you are going to see lots more aluminum, particularly in the U.S. light-truck sector," said Richard Klimisch, Detroit-based auto and light truck consultant to the Aluminum Association.
"There is pressure to increase fuel economy in those big vehicles and the only way to do that is to reduce the weight."
Consumers also want performance improvements, such as better acceleration, handling and braking, that usage of lightweight aluminum can facilitate, analysts said.
A study by auto market analysts Ducker Research showed that, on average, auto models in 2001 and 2002 will contain 270 and 281 pounds of aluminum, respectively, up from 253 pounds