Nonferrous

ALUMINUM REMAINS IN DEMAND

Coming from all parts of the world, solid demand for aluminum (and aluminum scrap) is keeping pricing strong and scrap flows fluid.

Speakers from different segments of the aluminum industry addressed attendees of the Aluminum Roundtable at the 2005 ISRI Commodities Forum in Chicago, with few of them expecting the market to weaken in 2006.

Commodities analyst Uday Patel of CRU, London, expressed "some degree of nervousness" about the 2006 economy, but said, "underlying fundamentals remain supportive" for the global economy to grow by 3.1 percent next year.

Among the regions that will exceed that growth rate, according to CRU analyses, are China, Eastern Europe, Southeast Asia and Latin America. The United States is predicted to grow at just about the average rate (3.2 percent), while Japan and Western Europe will grow at a slower 1.5 and 1.8 percent rate, respectively.

For aluminum in particular, demand will be driven by hurricane reconstruction in the Gulf Coast region as well as by the fact that "China’s appetite for aluminum continues unabated," according to Patel.

"We forecast [an average] LME three-month price at 81 to 82 cents per pound for 2005 and 2006—not bad at all," said Patel.

Frank Weissert, president of secondary aluminum producer Behr Aluminum, Rockford, Ill., remarked that despite having witnessed capacity going offline and consolidating throughout his 30 years in the industry, current conditions are not entirely gloomy.

Much of the growth in the aluminum die casting and foundry industries is occurring near the new automotive plants in the South, he noted, as automakers and their suppliers begin to forge alliances that allow them to operate in adjacent or nearly adjacent facilities.

Less encouraging to Weissert is the pending change in bankruptcy law set for Oct. 17. Some observers are worried about a "daisy chain" of bankruptcies if several large manufacturers (such as larger auto suppliers) file for bankruptcy right before the new, stricter law goes into effect.

Such filings might then cause a ripple of bankruptcies into the next tiers of suppliers, including metals producers with a majority of their business tied to one or two large manufacturing customers.

Fritz Gilbert of the Alcan spin-off Novelis Corp., Beachwood, Ohio, believes market fundamentals will keep aluminum pricing aloft for 2006.

Among the encouraging factors for U.S. recyclers are the weak dollar that makes their product more affordable overseas. Export demand will remain strong particularly if ocean freight costs on the trip to East Asia stay affordable. He noted that forecasters are predicting a 2006 price average for aluminum of from 78 to 90 cents per pound.

Gilbert also showed attendees slides of storm damage from Hurricane Katrina that included barges swept onto dry land and railcars blown into canals and rivers. Replacing metals-intensive objects such as these is likely to keep domestic demand firm for metals and scrap metal, he noted.

Used beverage containers (UBCs) also received some attention from Gilbert, who remarked that Novelis was working to raise the awareness of Americans that recycling aluminum cans is an important activity for the domestic metals industry. "The long-term viability of our industry hinges on the recycling message," he stated. "As an industry, we really haven’t fully leveraged this argument."

The ISRI 2005 Commodities Roundtable Forum was held in suburban Chicago from Sept. 20 to Sept. 22. Some 600 brokers, traders, processors and suppliers gathered for the educational and networking event.

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