“Alcoa Maintains Aerospace Push With Opening Of New Aluminum-Lithium Alloy Manufacturing Facility” – Forbes, 8 October 2014

Alcoa has now firmly established itself as a manufacturer of not only aluminum, but various lightweight metals as well.

After opening a nickel-based alloy engine part manufacturing facility in Indiana; investing in a Virginia facility that will generate nickel-based alloy jet engine blades; and recently signing a deal with jet engine parts manufacturer Firth Rixson to produce parts that use nickel, titanium, and aluminum-lithium alloys, Alcoa has now opened another Indiana-based facility that will manufacture aluminum-lithium alloy parts for the aerospace industry.

Alcoa chose to shift its focus because it doesn’t want to solely rely upon aluminum, since the aluminum market has been struggling with weak demand and overcapacity. While it looks like the aluminum market is picking up again, China’s growing aluminum production and growing exports of semi-manufactured products is now stunting the market. Alcoa has chosen to diversify by concentrating on alloys, which are cheaper, improve fuel efficiency, and curb maintenance fees. Overall, a better option for the aerospace industry, instead of titanium and composites.

Alcoa is ramping up its investments in lightweight metals and alloys: the company has contracted $100 million in aluminum-lithium manufacturing for 2017. For 2014, Alcoa has predicted an eight to nine percent growth in its aerospace sector. Alcoa is banking on the aerospace industry continuing to grow, and indeed it is. The demand for regional jets will increase by 13.2 percent in 2014, while the large commercial jet sector will increase by 12.1 percent in 2014.

Moving into the aerospace industry is a smart step for the aluminum mogul. In 2014, the company made a $4 billion profit from the industry, or 17 percent of Alcoa’s entire revenue for that year. Now that aerospace is set to grow, Alcoa is set to grow with it.

More about Alcoa:
After 125 years, Alcoa looks beyond aluminum
Alcoa, Novelis face new competition as aluminum gains in auto segment
Alcoa & Boeing Form Aluminum Recycling Program
Alcoa Posts a Jump in Net Profit

Developed and Written by Dr. Subodh Das and Tara Mahadevan

October 8, 2014

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Copyright 2014. All rights Reserved by Phinix, LLC.

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“As aluminum market shifts to deficit, all eyes on China” – Reuters, 1 September 2014

The aluminum market has finally reached a deficit, rather than a supply overflow. This is due in large part to a strong London Metal Exchange (LME) price — now trading at almost $2,100 per metric ton, the highest since 2013 — and raised physical premiums.

However, two things could potentially affect the aluminum market, and both have to do with China: growing aluminum production in China, and more semi-manufactured products being shipped out of the country.

While production has been steadily on the rise in China, the story has been different elsewhere. Worldwide yearly production in July was 24.38 million tons, down from an all-time high of 25.92 million tons in October 2011. New start-ups are popping up all over the world — specifically the Gulf region — forcing higher-cost facilities to shut down. Alcoa, for instance, recently closed one if its older smelters located in Italy.

From October 2011 to this past July, Chinese production has increased by 5.7 million tons per year to 23.28 million tons in July. Yet, most aluminum produced in China stays in China. In 2006, China’s government raised the tax on exports to 15 percent. The Shanghai price can barely hold its ground in comparison to the LME price: China’s total imports have lowered this summer, from 109,000 tons from February to April 2014 to only 19,000.

China is able to get around its country’s heavy export tax by producing and exporting aluminum alloys, though not enough to make an impact — the country shipped out a total of 347,000 tons of aluminum alloy last year. Chinese metals manufacturers are given a tax rebate for generating such products; if they alter primary metals just a bit so they pass as a product, then the product qualifies for a tax rebate, rather than getting slapped with an export tax.

There is a fear that these products might not always be what they seem, and might be a cover up for China’s excess aluminum. Now, Chinese exports are only growing. Since July 2013, China has seen a 14 percent increase in product exports. Another fear is that China’s product will fill the Western world’s gaps. The only thing keeping China’s aluminum exports in check is the Chinese government’s export tax, which could be lifted at any time. Regardless, China’s exports are still increasing.

Developed and Written by Dr. Subodh Das and Tara Mahadevan

September 2, 2014

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“Will All-Aluminum Cars Drive Metals Industry?” – Wall Street Journal, 13 January 2014

Obama’s 2010 mandate that obligates car manufacturers to double new-car average fuel economy by 2025 has pushed the car industry to produce more fuel efficient cars at a faster rate. Ford’s next F-150 — the US’s largest selling vehicle — is currently being redesigned and rebuilt with an all-aluminum body, a huge helping hand to both Obama’s fuel efficiency mandate and the aluminum industry.

Two big players in the Ford’s aluminum round-up are Alcoa and Novelis, the nation’s top aluminum sheet producers. In 2013, both companies spent $1 billion in opening new aluminum sheet factories, tailored to the auto industry. Raw aluminum prices have dropped by more than a third since 2011 — Alcoa and Novelis are hoping their new investments increase their profit margins.

The aluminum industry is making a huge bet. While aluminum is lighter, and better for fuel efficiency and the economy, it might not be better for pocketbooks — aluminum costs almost three times more than steel, the traditional metal used to manufacture cars. Moreover, using aluminum to produce vehicles requires new machinery; machinery used to manufacture cars from steel isn’t compatible with aluminum.

Only Audi and Jaguar — cars that a majority of the public can’t afford — have created all-aluminum vehicles. Ford’s new endeavor will likely trim 700 pounds from the currently-5,000-pound truck; this reduction will allow for a 7% growth in the truck’s fuel economy.

The aluminum market is now only valued at almost $300 per year. If more car companies choose to manufacture all-aluminum cars, then the market can skyrocket to $7.5 billion by 2025, a huge blessing for the aluminum industry, which is undergoing oversupply and low raw aluminum price issues.

The car industry is urging every aluminum company to invest, asking different manufacturers to produce different parts so there isn’t one that could dominate pricing. There is more than enough business for everyone: one contract for a mass-produced part can be valued at more than $50 million.

The question is, will there be enough raw aluminum materials and fabrication capacities to successfully undertake this venture, even though time has come to further enhance recycling and production of recycle-friendly automotive aluminum alloys in commerce? See a publication on this subject by Dr. Das – “The Development of Recycle-Friendly Automotive Aluminum Alloys“.

See also:
A Clean Car Boom
GM Planning Strict Diet for New Pickup Trucks

Developed and Written by Dr. Subodh Das and Tara Mahadevan

January 13, 2014

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“Heavy Metal Lurks in the Shadows” – Wall Street Journal, 27 December 2013

Across the world, millions of tons of metals — aluminum, copper, nickel and zinc — are being kept in secretive “shadow warehouses”, facilities that have gone unchecked and that don’t reveal their assets to the public. These warehouses function separately from the London Metal Exchange (LME), the long-established system for housing such metals.

Anywhere from 7-10 million tons of aluminum are being kept in shadow warehouses, both in the states and abroad, in places like Malaysia and the Netherlands; while a scant 5.5 million tons of aluminum are currently stored in LME warehouses.

Because producers and consumers don’t know how much metal actually exists on the market, it has become more and more challenging for experts to determine market pricing. If large quantities of metals surface onto the market from shadow warehouses, then it can become more costly to create everyday goods; conversely, mine and smelter production could be curbed if pricing falls beneath production expenses.

Shadow warehouses can be more profitable for companies involved in the metals markets: the unregulated facilities cost 10 times less than LME warehouses, while also providing companies with information that the general public doesn’t know. Yet, companies involved in the shadow warehouse system may have to pay higher bank interest rates, since LME warehouses are thought to be more stable.

In November, LME set new guidelines that obligate LME warehouses to ship out more metal than they receive, for deliveries with 50+ day wait times. Many LME warehouses have been experiencing massive bottlenecks, which the new rules address. The rules will begin on April 1.

Shadow warehouses exhibit the dark side of capitalism, where metals are stored and hoarded for profit making, and where market supply and demand dynamics are being artificially controlled.

See also:
Metals Logjam Benefits Producers
Aluminum Probe Focuses on Costs to Users
A Shuffle of Aluminum, but to Banks, Pure Gold

Developed and Written by Dr. Subodh Das and Tara Mahadevan

December 29, 2013

Phinix LLC

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