Aluminum Sheet, Plate, and Foil

SIC 3353

Companies in this industry

Industry report:

This classification covers establishments primarily engaged in flat rolling aluminum and aluminum-alloy basic shapes, such as sheet, plate, and foil, including establishments producing welded tube. Also included are establishments primarily producing similar products by continuous casting.

Industry Snapshot

Much of the aluminum industry's gains can be traced to the intrinsic qualities of the metal--aluminum is strong, lightweight, and eminently recyclable. Aluminum makers have been successful through the years in developing products and taking market share from competitors like steel. That appears to be the case again with the development in the mid-2000s of a technology that combined multiple layers of alloys into a single sheet for a product comparable to the thickness and benefits of stainless steel. The product is projected to be most functional for appliance industry designers. Aluminum manufacturers were, however, reeling from the aftermath of an economic recession that saw the collapse of both the housing market and the U.S. auto industry. After demand fell dramatically in 2009, the industry was attempting to regroup in 2010.

Aluminum sheet, plate, and foil represent the aluminum industry's major product group and account for the majority of shipments from aluminum producers. Aluminum is first produced in the form of sheet ingot. These ingots, which may weigh as much as 20 tons, are flat-rolled and rerolled until the desired thickness, or gauge, is achieved. The gauge determines what product has been produced: plate is a quarter-inch thick or more, sheet is .006 inch to .249 inch, and foil is less than .006 inch. Sheet is by far the most widely used form of aluminum and is found in all the industry's major markets, including containers and packaging (most notably beverage cans) and transportation (i.e. panels for automobile bodies). Plate is used for the skins of jetliners and to make storage tanks, among other heavy-duty applications. Foil is used, of course, in the kitchen to wrap up leftover pizza and such, but is also utilized in building insulation and electrical capacitors, as well as a wide variety of packaging applications.

The value of shipments for the aluminum sheet, plate, and foil industry were $16.7 billion in 2006, a significant jump from $11.5 billion in 2001. According to the U.S. Census Bureau the value of shipments was $15.10 billion in 2008, down from $16.35 billion in 2007.

Organization and Structure

Vertical integration in the aluminum industry is extensive--it goes well beyond the mining, refining, and smelting of primary aluminum (including sheet ingot, casting ingot, and extrusion billet) to the production of semifabricated and fabricated products downstream, including sheet, plate, and foil offerings. Alcoa, formerly the Aluminum Company of America, has dominated the industry. Its 2000 merger with Reynolds Metals, coupled with the restructuring of the former Tenneco, Inc., gave Alcoa a more pronounced presence in the industry. Canadian manufacturer Alcan, however, has launched a challenge with mergers of its own.

Background and Development

The aluminum industry is relatively young. The first major application, cast cooking utensils, did not appear until the 1890s. Following the turn of the century, however, prices fell, production rose, and applications grew. World War I greatly expanded use of the metal, as armies searched for lightweight, durable materials for military equipment. In the 1920s, high-strength alloys were developed that were used in the development of the commercial airline industry in the 1930s. During World War II, aluminum output increased, primarily due to demand from warplane production and soldiers' rations packaging. While consumption dropped briefly right after the war, consumer demand soon picked up the slack. In the early 1950s, the Korean War produced another surge in aluminum shipments. As consumer demand grew during the postwar prosperity, the range of applications increased accordingly. Use of aluminum building products in commercial and residential construction expanded, and aluminum foil became a staple of the American kitchen.

The advent of a strong environmental movement gave new prominence to the industry, since aluminum was particularly suited to recycling. To produce aluminum from recycled scrap requires only 5 percent of the energy that it takes to make it from scratch. Since the economics of recycling make so much sense, industry participants have supported the efforts of environmentalists in this area. Moreover, as governments pressure automakers to increase gas mileage of their vehicles and thus save energy, lightweight aluminum is gaining favor among manufacturers in a variety of applications.

Aluminum is a notoriously cyclical business, and after a very strong performance at the end of the 1980s, a few lean years might have been expected. The extent of the downturn, however, was an alarming one for industry participants and well beyond expectations. In the early 1990s, the aluminum industry became one of the unintended victims of the Cold War's aftermath. Russia no longer needed much aluminum for its defense sector, but it did hunger for export earnings. Before the fall of the Berlin Wall in 1989, Russia sent about 250,000 metric tons of aluminum overseas each year; by 1993, it was shipping aluminum at an annual rate of 1.2 million metric tons.

In 1994, however, the industry staged a strong recovery on the back of an improved economy and tighter supply. Overall demand for aluminum sheet increased 11 percent; the transportation sector was particularly strong, with usage in passenger cars up 23 percent. Moreover, under the so-called Memorandum of Understanding, the aluminum-producing nations agreed to shut down 1.5 million to 2.0 million tons of overall capacity. Russia alone cut its production by 500,000 tons a year. As demand grew and supply was restricted, inventories fell, prices strengthened, and profits rose.

The three major markets for aluminum in North America are packaging, building and construction, and transportation. While shipments to the beverage industry had been the major factor driving new demand through the early 1990s, in mid-decade, they had begun to stagnate as the beverage industry increasingly turned toward plastic options. Thus the industry looked to the transportation sector for new markets and continued growth.

Transportation.
In the 1990s, the aluminum industry invested substantial resources in both research and development and marketing to displace steel as the metal of choice in automobiles, and by mid-decade, it had made significant progress toward that goal. According to the Aluminum Association, in 1998, aluminum shipments to North American carmakers totaled 7.16 billion pounds, accounting for 31 percent of the total market. Sheet aluminum accounted for the greatest volume.

In the automotive market, as in others, aluminum's advantages are its recyclability (at a time when governments and environmentalists are aiming for a totally recyclable car) and, especially, its light weight (which improves fuel economy). While aluminum is only 35 percent as dense as steel (its specific gravity is 2.7 versus 7.8 for steel), it can be nearly as strong, depending on car assembly methods. The development of higher-strength alloys has increased the attractiveness of aluminum in recent years. Some observers believe that the electric car is the most promising market for aluminum, because such automobiles must be light to compensate for the presence of heavy batteries.

One drawback of aluminum, however, is the relatively high cost, which has led some to believe that "all-aluminum" cars will continue to be restricted to luxury models. In 1996, there were only two such BIW (body-in-white) aluminum cars: the Honda Acura NSX and the Audi A8, and both were high-priced, low-volume sports cars. The Acura's aluminum BIW weighed 309 pounds, or 40 percent less than what a hypothetical steel model would have. Aluminum requires more energy in spot welding and is less formable in stamping than steel.

Can Sheet Production.
In 1963, almost no beverage cans were made from aluminum; 35 years later, all beverage cans were aluminum. Shipments of can sheet rose steadily throughout the 1980s and early 1990s, increasing from 2.9 billion bounds in 1982 to 4.3 billion pounds in 1992--24 percent of the aluminum industry's total shipments. Aluminum displaced both glass and bimetal cans partly because of its light weight and stackability. Moreover, in a period that saw rising ecological concern, aluminum's recyclability meant it was environmentally friendly. In 1998, 64 billion aluminum cans were recycled, according to the Aluminum Association.

Perhaps the main selling point for aluminum was its lower overall cost. In 1994, however, as supply contracted and prices rose, beverage makers had sticker shock. In December 1994, Coca-Cola announced that it would replace aluminum with steel in some of its European and Asian markets, and many beverage makers talked of switching to cheaper materials.

Anticipating still-higher can sheet prices in 1995, beverage makers stockpiled inventories--soft drink can shipments rose 10.4 percent in 1994--which hurt the market during the mid-1990s. A longer-term trend in the beverage industry has potential repercussions for aluminum producers. So-called New Age drinks have been increasing in popularity, and these have traditionally been sold in glass bottles. While the industry has tried to convert New Age bottlers to aluminum, in 1994, bottlers shied away from marketing their products in 24-ounce aluminum cans because of the high price. As soft-drink companies experimented with alternate serving sizes--typically larger than the traditional 12-ounce can--through the 2000s, more cost-effective plastic containers became a more popular choice. Meanwhile, in the beer segment, aluminum makers must contend with the growing popularity of products from microbreweries, which package their beer in bottles.

Moreover, for a variety of reasons, can makers are adopting smaller lid designs and are using thinner aluminum. As a consequence, manufacture of each can requires smaller amounts of aluminum than in past years. Thus, greater unit demand for cans does not necessarily translate into an equal rise in aluminum requirements. Producers had been hopeful that overseas beverage can markets, where aluminum's penetration has on average been much lower than in the United States, would pick up the slack.

Aerospace.
The aluminum industry has aggressively penetrated the aerospace market; nearly all defense planes have an aluminum content of 70 to 90 percent. Demand for aluminum from the aerospace segment was strong during the 1980s, as both defense spending and commercial aircraft orders were buoyant. By the early 1990s, however, the aerospace segment was in decline. The airlines cancelled or delayed orders as their profits disappeared, and with the Cold War over, the government cut outlays for the military. According to Aluminum Association statistics, annual shipments of both heat-treatable sheet and heat-treatable plate, which are primarily used in defense and aerospace applications, fell 23 percent and 19 percent, respectively, between 1989 and 1992.

By 1996, the commercial jet aircraft market proved to be one of the few bright spots in an otherwise lackluster aluminum picture. Price hikes of 10 to 15 percent in some heat-treated and heat-plated products were announced at the end of the year by Alcoa, Reynolds, and Ravenswood Aluminum.

The aluminum producers continued to maintain a dominant role in the aircraft market despite the attempts of other materials makers to steal share. In the 1980s, proponents of nonmetallic advanced composites claimed that by the second half of the 1990s they would account for up to 80 percent of commercial airframe weight. In the mid-1990s, those predictions appeared overblown. Aluminum in the Boeing 777 accounted for about 65 percent of total weight, down from previous generations of airliners but nowhere near the 20-25 percent level that some pessimistic observers had forecast. The composites have made the most headway in the plane's tail, which in the 777 represents a loss of about 25,000 pounds of aluminum products.

Meanwhile, the industry continued to work on new alloys and new processes. Despite cutbacks in its budget, the Pentagon remained committed to maintaining its technological edge, which encouraged aluminum companies to make new investments in research and development to service the military's needs.

Recent Trends.
The value of product shipments for aluminum sheet, plate, and foil manufacturing rose from $14.7 billion in 2005 to $16.7 billion in 2006. After difficult economic times in the early 2000s, low interest rates jump-started the economy and led to greater aluminum sales to the housing and automotive sectors in the mid-2000s.

Although sales to the housing sector dropped off in the late 2000s as mortgage and foreclosure issues dampened the market, auto makers continued to try to work more aluminum into their vehicles to offset continually rising fuel prices. Shipments to the transportation sector accounted for approximately 34 percent of aluminum sales in the mid- to late 2000s, up from 31 percent a decade earlier. Shipments to the container and packaging sector dipped below 20 percent of overall sales by 2006, a drop from nearly a quarter of all sales in the early 1990s. Meanwhile, shipments to the building and construction sector dropped below 14 percent.

The dropoff in shipments to the housing sector was of particular concern because the trend was not likely to reverse, especially with builders opting for other materials in place of high-cost aluminum. The softening market of the late 2000s prompted aluminum providers to increase the cost of aluminum ingot 35 percent from 2006 to 2008, while the cost of aluminum sheet rose 32 percent. Nichols Aluminum provided an example of that concern when it attributed weak orders from the building and construction sector as the primary reason it halted operations to close a mill in Decatur, Alabama, according to an April 2008 article in Purchasing.

In terms of industry shipments, aluminum sheet and strip commanded the bulk of sales with more than 84 percent in 2006. Plate accounted for almost nine percent of sales, and foil accounted for just shy of seven percent.

Breakthrough technology developed in 2006 that gave aluminum the potential to substitute for stainless steel provided optimism for the industry. The Novelis Fusion technology cast multiple-alloy layers into a single aluminum ingot, for the first time allowing commercial production of multi-alloy aluminum ingots after decades of attempts. The multi-alloy ingots are rolled into sheet products with different properties on the outside than on the inside. The process has few restrictions in terms of alloys that can be combined. The technology is expected to give a boost to the consumer durables sector, which accounted for 6.3 percent of industry shipments in 2006.

Current Conditions

A major shift occurred within the industry in 2010 when industry leader Alcoa failed to renew its can sheet supply contract with Anheuser-Busch InBev and PepsiCo at the end of 2009. Alcoa, which was in the process of moving away from London Exchange-based pricing, had previously been operating under a contract that was a decade old. According to American Metal Market, analysts estimated that Alcoa was receiving a conversion price of about 30 cent a pound when the average rate in 2009 was in the mid-40s. Analysts suppose that InBev and PepsiCo balked at the price hike proposed by Alcoa, and Alcoa refused to retain its business at the lower price end. As a result, Alcoa sent 700 million pounds into the marketplace. Wise Metals Groups, headquartered in Linthicum, Maryland, picked up most of the contract, with Novelis Inc. taking the remainder. For its part, Alcoa cuts costs to account for the lost volume but was back to normal capacity by the second quarter of 2010.

Apparent consumption of aluminum fell dramatically during the late 2000s due to the economic recession that stymied the U.S. economy in general and specifically both the U.S. housing market and the U.S. auto industry. Despite a multi-billion dollar attempt by the federal government to bail them out, both Chrysler and General Motors filed for bankruptcy protection in 2009. Due to a banking crisis, credit was problematic for many consumers, and auto sales fell. New home sales fell to 50-year lows in 2009. Apparent consumption of aluminum fell from 5.11 million metric tons in 2007 to 3.79 million metric tons and 3.61 million metric tons in 2008 and 2009, respectively. Average U.S. market (spot) price for ingot dropped from $1.252 per pound in 2007 to $0.78 per pound in 2009. Aluminum producers' refineries were operating at less than 50 percent capacity during the fourth quarter of 2009.

Outlook for aluminum during the first half of 2010 was mixed. Demand returned to some end markets, prompting some producers to bring idled capacity back on line. However, the increased production threatened to put downward pressure on prices just as they were recovering upward. Sheet, plate, and foil producers depend on increased demand from end users. As a result, the ongoing uncertainties pertaining to how and when the U.S. economy would recover from the recession left many questions unanswered, particularly in the housing and auto industry. Aerospace and defense applications as well as medical applications were targeted as likely areas of growth.

Industry Leaders

The largest aluminum producer in the world is Alcoa (Aluminum Co. of America). Indeed, in the early part of the century, it was the only aluminum producer of consequence in North America. In 1928, it spun off its foreign operations into Alcan, the large Canadian producer, as it continued to dominate the U.S. market. In 1950, Alcoa's domestic monopoly--which had already been somewhat diluted by the federal government's efforts to create competitors during and following World War II--came to an end as the courts dismantled the company. In the early 1960s, the reconfigured company began to produce more semifabricated and fabricated products as it expanded output of can stock and products for the aerospace industry. In the late 1980s, after the acceptance of diversification earlier in the decade, the company refocused on its aluminum business.

In 1998, Alcoa merged with Alumax, another key player in the industry. Alumax, which derived about 30 percent of its income from the construction market, had itself acquired extruded aluminum manufacturer Cressona in 1996. A year after the Alumax deal, Alcoa announced plans to acquire the venerable Reynolds Metals Co. This deal came in the form of an all-stock bid valued at $4.3 billion. In 2007, Alcoa reported a net income of $2.81 billion on sales of $29.28 billion.

In 2008, as the aluminum industry was hit with high energy costs and the beginning of the economic recession, Alcoa's net income fell to $229 million on $26.9 billion in revenues. The following year, in 2009, when a failing economy--including the collapse of both the housing market and the U.S. auto industry--took full effect, Alcoa's revenues dropped to $18.44 billion, and the company recorded a net loss for the year of $985 million.

Reynolds Metals Co. had been a leader in developing new aluminum products, from baseball bats to grain bins. It introduced the aluminum beverage can in 1963, when steelmakers had a lock on that market. Reynolds' two-piece can took about one-fifth the time to make and used 40 percent less metal than the three-piece can of its steel rivals, which it quickly displaced. In 1968, the company pioneered the huge can recycling program that gave makers a cheap source of aluminum and was cheered by environmentalists. Reynolds had the wisdom to stick with its famous aluminum foil when it was a money loser. Reynolds now operates as Reynolds Food Packaging, a subsidiary of Alcoa.

Workforce

The manufacturing workforce of the major aluminum companies is heavily unionized. The industry's two major unions are the United Steelworkers and the Aluminum, Brick, and Glass Workers.

In 2009, 229 establishments operated in the aluminum sheet, plate, and foil manufacturing industry with a total of 18,051 workers. In 1983, there were 28,100 workers, and by 2001, the figure was down to 20,200. According to Dun and Bradstreet, the industry employed 12,250 in 2009.

America and the World

Historically, the U.S. aluminum industry has been adept at expanding overseas and capitalizing on its foreign assets. Indeed, the aluminum industry has a greater presence abroad than many other U.S. industries.

In the early 1990s, international developments were the source of the industry's major problems. While shipments in the U.S. in 1992 were healthy as the economy pulled out of recession, conditions in Europe and Japan remained depressed; meanwhile, Russia was rapidly increasing its aluminum exports. The price of aluminum ingot (which is eventually reflected in sheet, plate, and foil quotes) on the London Metal Exchange (LME) fell from above a peak of $1.65 in 1988 to $.50 in late 1993. With the international supply/demand equation unbalanced, producers worldwide were suffering. Thus, in 1994, the industry signed a two-year Memorandum of Understanding to limit worldwide supply; it reduced overall capacity by 1.5 million to two million tons, and Russian capacity alone by 500,000 tons.

U.S. producers have strengthened ties with Japanese aluminum and steel companies. In September 1990, Alcoa and Kobe Steel announced a strategic alliance to exploit worldwide opportunities in aluminum that resulted in four joint ventures in the United States and Japan. The agreement was particularly noteworthy because the steelmaker has strong relationships with the automobile industry.

With the passage of the North American Free Trade Agreement (NAFTA), trade between the United States and Mexico in aluminum received increased attention. The role of Mexican aluminum manufacturers in the U.S. auto industry was expected to grow significantly into the 2000s. Such companies as Nemak SA of the Alfa Industrial Group should be a major source for aluminum castings, particularly in power train applications. The increase in trade wasn't expected to be in just one direction: Mexico's imports of secondary aluminum rose to 20,000 tons in 1996, owing to increased auto production following the passage of NAFTA.

In the late 2000s, the United States continued to reduce its dependence on imported aluminum. Net import reliance as a percentage of apparent consumption was 41 percent in 2005. In 2008, the United States had a trade surplus, and in 2009, the net import reliance was 18 percent.

Globally, both production and consumption of aluminum is dominated by China. In 2009, China had the capacity to produce 19 million metric tons of aluminum annually, followed by Russia (5.15 million metric tons) and the United States (3.5 million metric tons). In the same year, China produced 13 million metric tons, followed by Russia (3.3 million metric tons), Canada (3 million metric tons), Australia (1.97 million metric tons), and the United States (1.71 million metric tons).

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