What does post-hurricane phase hold in store for US aluminium sector?

United States – Scrapped vehicles will prompt ‘a large inflow’ of aluminium auto body sheet, wheels, castings and extrusions in the aftermath of Hurricanes Harvey and Irma, according to Mike Southwood, aluminium market specialist at UK consultancy CRU. In his view, the two key questions for the US aluminium market are: How quickly will the repairs and replacements happen? And how significant will any increase in demand for aluminium products be?

It has been over 165 years since two category-four Atlantic hurricanes hit the USA in the same year. ‘The regions ravaged by Hurricane Harvey and Hurricane Irma face a recovery period that will last many months,’ reflects Southwood.

Aluminium substitution for steel in vehicles has been increasing for many years. ‘This is especially true of light trucks, which are popular in Texas – such as the all-aluminium F-150s,’ he observes.

The new vehicles being scrapped well ahead of their expected end-of-life will ultimately feed into secondary aluminium smelters, representing mostly Zorba and Twitch.

‘The US is an exporter of Zorba to China, but recently export volumes to China have been decreasing; additional domestic supply at a time when export markets are shrinking is likely to have an impact on domestic prices,’ Southwood argues. While Twitch is the main feedstock for the A380 die-casting alloy, CRU does not believe that a significant increase in supply as a result of the hurricanes would be consumed in the US market; instead, the metals are more likely to be exported for reprocessing.

Repair activity will result in a significant boost in demand for aluminium building sheet and extruded products over the near term. Unlike in the automotive market, demand for aluminium building products will be felt quickly as their supply has been ‘tight’ and stock is not available to meet immediate demand.

Regarding cars and light trucks, the US automotive industry has built up a 70-day, 4.2-million-unit inventory over the past few years. The additional demand for replacement vehicles may dent inventory levels but the huge available stock is far in excess of likely replacement demand.