Automotive trends drive foundry alloy demand

Aluminium producers are ramping up their production of primary foundry alloys (PFAs) in anticipation of increased demand from the automotive sector, and amid a market shift away from a reliance on traditional internal combustion engines (ICEs) toward hybrid vehicles.

Global aluminium producers such as Vedanta and Rusal have announced increases in production of PFAs in 2019, with their eyes on long-term growth in the PFA market on expectations that demand for the material will increase as a consequence of the move toward hybrid vehicles in the coming decades.

Russian producer UC Rusal completed the installation of a new aluminium smelter with capacity for 120,000 tonnes per year in July 2019, raising the company’s PFA capacity to 418,000 tpy from 298,000 tpy. This unit is expected to come online in September 2019.

“After the launch of our foundry complex, we are confident that we will be able to expand our customer base and increase the supply of high-tech alloys for the automotive industry,” company director Yevgeny Nikitin said on July 23.

Indian aluminium producer Vedanta announced its intention to raise output to 300,000 tpy of PFA in January 2019, from 30,000 tpy.

Weaker near term

The moves to increase production coincide with a weaker near-term market.

Bearish macroeconomic factors, such as the global trade war between the United States and China, have created economic uncertainty, and weaker US and German manufacturing throughout 2019 has led to softer PFA prices globally.

Fastmarkets assessed the aluminium wheel alloy silicon 7 ingot premium, ddp Germany, at $335-355 per tonne on Friday August 9, the lowest level since pricing of the alloy began in August 2015.

Meanwhile, the aluminium wheel alloy silicon 7 ingot/T-bar premium, delivered dup, over the price of P1020A Midwest US, widened to 8-12 cents per lb on August 9, a one-year low.

Despite low spot premiums, market participants see the growth of PFA production and the market in the coming years as a sign that major aluminium producers expect there to be an increase in demand for the metal because of the growth of the hybrid vehicle sector.

According to a report by investment bank JP Morgan last October, it expects hybrid vehicle growth to rise to more than 25 million vehicles, or 23% of global sales, by 2025, compared with 3% of global market share currently. The growth in hybrids, and subsequently PFA demand, will be spurred by a worldwide increase in carbon-dioxide emission legislation.

Legislative change on carbon emissions requires more thermally efficient engines, which is driving more sophisticated technological requirements in design and casting, in turn increasing long-term PFA demand.

“Investments in the development of battery electric vehicles and plug-in hybrids continue to rise, spurred in part by the looming implementation of the EU’s carbon-dioxide emissions reduction targets in 2020 and 2021, as well as new-energy passenger vehicle production and fuel consumption targets in China,” according to a research note published by Moody’s Investor Service in August.

In China, those legislative changes include lowering emissions through its China 6 policy. In Europe, the European Parliament and Council are working to reduce carbon-dioxide emissions and will implement the more stringent requirements from January 1, 2020, setting stricter carbon-dioxide emission performance standards for new passenger cars and light commercial vehicles.

“Automakers have taken the decision to ramp-up production of hybrid cars,” one market source said. “In the long term, the demand for this kind of alloy will increase with decades of this hybrid car growth.”

More primary, less secondary?
Although the shift toward hybrids will increase demand for PFA, some expect that the secondary aluminium alloy market in Europe will take a hit.

Secondary aluminium alloys, such as DIN226 in Europe, are used in diesel-engine cars, and a move away from ICE vehicles would mean less demand for the material, some say.

“You can’t enter the center of cities if you have diesel engines,” the first market source said, referring to recent legislation in Europe intended to reduce emissions. “The diesel engine has a higher amount of secondary alloys. Hybrid engines have a higher amount of primary alloys. If we don’t buy diesel any more, it means fewer requests for secondary alloys and more for primary alloys.”

Fastmarkets assessed the price for aluminium pressure diecasting ingot DIN226 at €1,300-1,350 ($1,431-1,486) per tonne on June 21, 2019, the lowest since November 2009. The decline in price and demand followed a sustained decline in European automotive sales in 2019.

Some remain bullish about long-term demand for DIN226 ingot, saying that it will continue to have an application in automotive production.

“Hybrids may see a little bit of downsizing in 226 demand but will still need additional aluminium,” a European producer said. “We have two big future 226 orders for the future because additional components required for hybrids, including transmission housings, means more aluminium, not less. Hybrids would be good news for DIN226.”

This article was first published in the September 2019 issue of Metal Market Magazine, which carries in-depth feature articles, analyses and reviews of the metal and steel markets.

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