Nonferrous in 2011
February 3, 2011
To continue to provide diverse content in Industrial Heating, we focus on different segments of the industry in different months, and each month we highlight different editorial topics of interest. February is our focus on the nonferrous industry, and our goal is to provide topics of interest to the nonferrous-industry readers as well as our more broad audience.
How is the nonferrous industry doing as we enter this new year? As I write, Wall Street eagerly awaits Alcoa’s corporate earnings report. Alcoa is the first component of the Dow Jones Industrial Average to announce its quarterly results, and Alcoa’s aluminum-production business is considered a good barometer of certain larger sectors of the broader economy.
CNBC’s Jim Cramer recently hailed Alcoa as a “top 2011 stock.” Cramer predicts that aluminum production this year “will go through the roof” due to higher demand for autos, airplanes and housing. He also considers Alcoa a prime takeover target. Global X Funds, an exchange-traded fund (ETF) company, must agree because on Jan. 5 they rolled out an ETF devoted to companies primarily involved in the aluminum industry. Their largest weightings are Rio Tinto, Alcoa and Hindalco Industries. Global X has also begun trading ETFs called Global X Uranium and Global X Lithium.
Late last year, Alcoa Inc.’s chief executive was on record saying that he believed the aluminum industry would double in the next decade as demand picks up in China, Brazil and other emerging countries. Alcoa forecasts $2.5 billion in additional revenue by 2013 for rolled products and a $1.6 billion revenue increase for engineered products and solutions. Mid-year 2010, Novelis Inc. was a bit less optimistic about aluminum’s future, estimating the rise of global demand of “4% annually over the next five years with Asia being perhaps double that rate.”
In recent years, China has been both the largest producer and biggest consumer of aluminum. An industry official has described this phenomenon as “The China Factor,” which has resulted in the growth of the Chinese aluminum-extrusion market share from 6% in 2006 to greater than 20% today.
A new report called “Aluminum: Global Industry Guide” sheds some light on where this growth will occur. It predict that the global aluminum industry in 2013 will have a volume of 49.2 million metric tons, which is an increase of 45.2% since 2008. In that time period, the value of the industry is expected to grow to $122.8 billion – a 31% increase. It’s interesting that volume is predicted to increase by 45.2% while industry value only increases 31%. One measure seen last fall was an increase of 28.3% in the annual aluminum export rate (from 2009) while producer inventory levels increased 12.8%. Needless to say, this type of increase is driving production levels. This is evidenced by Alcoa’s recent announcement to restart idled potlines at three aluminum smelters in the U.S., creating approximately 260 new jobs through recall and hiring.
Copper was also grabbing headlines in the last quarter of 2010. A weaker dollar was drawing investors to the base-metals markets. As a result, copper prices hit two-year highs. It was up 30% from June to October as a result of improving industrial demand and concerns about global supply. Although commodities (in general) are softening in early 2011, copper prices remain up 28% from a year ago.
Recent research conducted in the military barracks at Fort Jackson in Columbia, S.C., has led to an EPA registration of copper HVAC components. Unlike aluminum, copper has been found to resist the growth of bacteria, mold and mildew. Hospital studies have also shown copper to be effective in reducing bacteria in intensive-care patient rooms on objects such as bed rails, tray tables and nurse call buttons.
Nickel is another metal that experienced price swings in 2010. As an alloy addition, its future prospects are closely tied to the steel industry, which is in a bit of an upswing. The demand in China and India for urbanization increased the production of steel in 2010. It’s expected that the higher nickel prices will result in production increases. Similar to Global X, ETF Securities introduced the first copper, nickel and tin ETF products on the London Stock Exchange on December 10.
If the nonferrous industry is a barometer of the economy in general, 2011 will certainly be an improvement over the recently departed 2010. We expectantly hope the sign is an accurate one. IH