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Automotive, heavy truck, aerospace promise demand surge for aluminum: Alcoa CEO

By Corinna Petry

14F150 STX SprtPckg

April 9, 2014 - Alcoa Inc. forecasts improved demand for aluminum across several major North American manufacturing industries during 2014.

“We see continued strong performance from the large commercial aircraft segment. It’s up 12.1 percent. The backlog at Boeing and Airbus now stands at 10,675 aircraft units. This is well over eight years of backlog,” chairman and chief executive officer Klaus Kleinfeld said during the Pittsburgh-based aluminum producer’s quarterly earnings call.

“We’ve seen strong demand coming from Asia and the Gulf region.” He cited 90 aircraft orders and options for Airbus during the Singapore Air Show, Japan Airlines placing $26 billion in orders as well as “ANA (All Nippon Airways) both to Airbus and Boeing.”

The International Air Transport Association forecast 5.8 percent growth in passenger traffic and 4 percent growth in cargo traffic this year, Kleinfeld noted.

“Regional jet (builders) have rebounded nicely at plus 13.2 percent and now have a backlog of roughly five years with over 1,200 aircraft.”

Another key consumer is automakers.

“In automotive sheet, we expect a 50-percent average growth in the next year. (In) North America, we believe the auto sheet market by 2025 will cover 1 million metric tons,” said Kleinfeld.

Ford Motor Co.’s decision to create an aluminum-intensive F-150, its signature vehicle and the best-selling vehicle in the United States for 32 years, “is nothing short of historic,” he said.

“It’s military-grade aluminum alloy in the body and the back, 700 pounds lighter, accelerates, brakes, tows and resists corrosion like never before.”

Ford sold 763,400 F-series trucks last year, up 18.3 percent from 2012. “You understand why we believe we are only seeing the start here. We believe aluminum content in cars is going to quadruple until next year and then (increase) tenfold. That’s why we are building out our capacities (for automotive sheet).”

Alcoa spent $300 million to upgrade its Davenport, Iowa, plant last year and its Blount County, Tenn., plant will be ready next year, according to Kleinfeld.

“Another good (outlook) comes from the heavy truck and trailer market in North America. We are substantially increasing our production forecast to a range of 5 to 9 percent growth.

“We saw (truck) orders increase 15.3 percent in the first quarter vs. the fourth quarter. Orders in the first quarter stood at 90,100 trucks and that’s up 35.2 percent from first-quarter 2013, and was the highest first quarter since 2006.”

North American truck order backlog ended February at 114,100 units, and inventories have been falling, said Kleinfeld. Production rose 19 percent during the March quarter, compared with a year earlier, and rose 8.3 percent from the December quarter.

The commercial transportation industry expects 3.4 percent average annual growth rate in the truck market and higher demand for commercial vehicle wheels, where “the shift over from steel to aluminum is very exciting.”

Kleinfeld believes Alcoa is well positioned to capitalize on growing transportation markets.

In trucking, for example, “We are literally reinventing the wheel. We are making it lighter and brighter.”
With commercial and passenger vehicles, he said, “The consumer wants fuel efficiency, lower emissions, lower operating costs and higher payload and we give it to them.”

Kleinfeld cited the Ultra ONE wheel, lightweight but meant for heavy duty applications. “We invented a new alloy for it (that) allows us to be 17 percent stronger and that allows us to come out with a wheel weighing only 40 pounds. This wheel is 47 times lighter than steel and it’s even 18 percent lighter than an average aluminum wheel.

“In total, it helps save 1,400 pounds per rig and an operator can use it to increase payload or to bring operating cost down.”

Alcoa projects aluminum will penetrate 50 percent of the commercial wheel market by 2018.

Although demand from North American beverage can and packaging makers will likely fall 1 to 2 percent this year,
it will be more than offset by a 3 or 4 percent rise in construction. Kleinfeld cited the architectural billings index, non-residential contracts and improving home prices.

His forecast is not deterred by sluggish first-quarter construction activity, which was “pretty much single-handedly driven by extremely cold weather,” he said.

“Concrete couldn’t get poured and (builders) are now trying to catch up and trying to make up the days that they had lost for project completion, so we continue to be optimistic in the recovery of that market (during 2014).”

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