No prizes for guessing what is the situation in global Aluminium industry today. LME is below sustainable price range for more than 1500 days now, premiums are volatile and highest ever, smelter shutdowns and production cuts have been on since over 5 years, one of the longest recessionary phases experienced since the 1960s. Most new projects are on hold, mineral and input material prices have been gone through the roof. Industry captains are struggling to find an answer to this prolonged fundamental and technical ‘disturbance’ in the global Aluminium scenario.
Would it be fair, then to expect the automotive industry alone to offer that one lifeline to help the industry pull out of the vortex? The western auto industry has been facing stagnating and in many regions, declining demand. The price elasticity is more sensitive and negative now than what the industry had faced in some of the worst market slides. Whatever positive numerical growth rate that is coming up and sustaining a positive global automobile demand growth rate, is coming from Asia and Australasia region. True, the Americas are on their way out of the economic depression of the 2008-09 but the consumers seem to have got wiser in these markets as well. They seem to be making more and more of their buy decisions on the ‘price tag’ considerations rather than on the technical features of weight reduction and fuel economy of the machines. The Asian markets are still predominantly partial to compacts and mid and small size cars. Where is the room then for Aluminium to play an aggressive role in the global automobile industry and look out for support in increasing the tonnage demand of primary aluminium from this consumer sector?
The ‘ifs’ and ‘buts’ are many but it also remains a fact that for the aluminium industry in general, both for the primary and secondary sectors, global automobile industry remains an important driver for increasing demand for primary, secondary aluminium alloy, high margin castings and engineering components. Starting with just about 20Kg per unit mid size car in 1960s, the utilisation of aluminium in both personal and commercial automobiles has steadily increased. While no universally acceptable average figures are available, the mid size personal vehicles today have anything from 60 to 110 kg’s per unit. This is notwithstanding the increasing substitution threat coming in from high strength ductile steel, plastics, polymers, and composites. What saved steel from whole sale substitution threat from aluminium is now helping Aluminium from warding off the threat from the mentioned non- metallic substitutes, and that is, distinctive cost and bulk availability advantage!
The two major aluminium based auto components that helped aluminium intensity in both personal and commercial automobiles to increase have been Alloy Wheels and the All Aluminium Engine Block. These two heavy weight components essentially use virgin primary metal in their fabrication. Aluminium Airframe and body components are under constant threat from polymers and composites. The ‘under the hood’ components like fuel injection, air duct and air conditioning lines, plus covers etc. tend to use secondary Aluminium alloys mostly.
In commercial vehicles too, the Aluminium intensification is more or less on the same lines except for the distinctive preference that Aluminium has in building of carriage, container and body structures. This is more so in developed economies and the doors are also opening up fast for the same in the developing economies, too.
However, with ‘cost advantage’ rather than fancy cosmetic applications appearing to be the most plausible short and medium term survival and growth life line appearing to be coming from the automobile industry worldwide, concentrating on increasing utilisation of alloy wheels and all aluminium engine blocks as original equipment could be a plausible strategy for recovery and growth. The emerging economies of Asia and the Far East which are essentially high volume but also highly price sensitive markets, probably offer the best scope for rapid scaling up of primary metal demand from this otherwise lucrative consumer segment .
Auto component sector in the Eastern hemisphere could need technological and financial hand holding support to grow and be competitive enough to ward off the threat of replacement and substitution. Would the global industry consider playing this ‘mother industry’ role in days to come? Or, to get the best out of the global automotive industry, would some of the primary metal producers consider becoming major direct players in R&D, production and market promotion for meeting the emerging needs of auto sector? European primary aluminium producers have been playing a significant role in this respect for quite some time. Maybe, it is time, the aluminium producers in the Asian and Middle East region also need to take a similar look at nurturing the needs of the automobile industry in their backyard!
Whatever it is – for the ailing global primary aluminium industry, it is probably the right time to think radically and differently to develop new sustenance strategies to not only come out of the tail spin but also ensure long term growth and stability for the future with due demand support coming in from the global personal and commercial automobile sector.