MB RESEARCH – STEEL VS AL: Time to downgrade aluminium’s penetration of the car market?

Is the aluminium industry being overconfident about how 6-series sheet will displace steel for auto-body applications? Metal Bulletin Research investigates.

Is the aluminium industry being overconfident about how 6-series sheet will displace steel for auto-body applications? Metal Bulletin Research investigates.

In Metal Bulletin Research’s view, Ford is taking a massive gamble with its F-150 pickup truck, and if the move does not pay off it could have a dramatic effect on other car companies’ take-up of aluminium, eroding many of the bullish forecasts made about the metal’s prospects in the auto-body sector.

There are key risks ahead in the outlook for aluminium to 2024. Many of the key variables that had supported a bullish aluminium outlook, such as high fuel costs and low aluminium prices facilitating expensive “change-over” investments, are beginning to change and the swing may now be moving back towards steel’s traditional dominance.

Ducker Worldwide, however, an independent consulting and research firm, has forecast that up to 75% of pickup trucks will have been switched to aluminium bodies by 2020. In large part, the expectation is that Ford’s move with the F-150 truck (a decision taken back in 2009 to build the first aluminium vehicle for the mass market) will cause a “domino effect”, with other car companies adopting Al sheet bodies and the phenomenon spreading globally. After all, the F-150 pickup is the best-selling Ford vehicle in the USA.

But what could go wrong with this scenario? In our view, quite a lot when looking at current events.

In fact, do the economics of aluminium-use actually stack up?

At the production end:
1. The delays in accomplishing change-overs and the complexities of the move are only now being realised. Supply chain management, capacity shortage issues and the creation of conversion plans represent serious challenges for aluminium in the auto industry. Ford’s recent Escape crossover – a far less complicated vehicle to build than the F-150 – has been recalled a dozen times in 2014, according to one media report.

2. In terms of actual output, when using steel sheets, Ford plants making F-150 trucks were capable of churning out 90-plus vehicles per hour, while sources estimate that, with aluminium, output will drop to only about 60 vehicles per hour. In part, this is due to V-forming differentials. Aluminium’s “springback” issues put it at a disadvantage to steel. Analysts have estimated that Ford’s extra production cost with aluminium is probably about $1,000-1,400 per vehicle. Extra costs are incurred by the extra heat processing required to use aluminium, the extra cost of rivets and adhesive usage using vacuum pumps as opposed to magnets, and so on.

From the sales point of view:
1. We expect the aluminium F-150 truck to face higher insurance and repair costs relative to steel-bodied cars. Customers will also face the inconvenience of time and additional cost to drive the extra miles to a distant, specialist garage which is both equipped and has the trained staff to make aluminium body repairs. It is estimated only 15% of car garage technicians in the USA know how to fix the F-150’s aluminium body. With so few suitable repair shops, monthly insurance premiums will have to be higher.

2. Ford is clearly banking on the F-150’s loss of 700lb in weight and improved fuel economy being a game changer for the pickup market. However, the aluminium truck’s performance is no better than some of its rivals. The mileage on the 3-litre EcoDiesel in the Ram 1500 today is better than the Ford F-150 with the aluminium body, at least in terms of what its maker has stated as its tested mileage numbers. Ram’s EcoDiesel pickup truck even beat the aluminium Ford F150 to Green Car Journal’s 2015 Green Truck of the Year award.

Moreover, Rivals GM and Ram are slashing prices on their trucks to attract disenchanted Ford owners and newcomers to the segment. Chrysler is happy to meet increasingly stringent corporate average fuel economy (Cafe) standards by mainly making improvements to powertrain components, rather than focusing just on curb-weight reductions.

The question is therefore whether Ford will achieve its target sales when it has to pass costs on to the consumer at a time when oil prices are low and the onus on fuel efficiency is waning? Will this mean aluminium will be precluded from small/medium sized vehicles in the future?

3. The other important factor to consider in judging aluminium’s penetration of the car market is how steelmakers will counter-react to the threat. Given the strong inroads made in consolidating the US flat steel product sector in 2014 (plants owned by ThyssenKrupp USA and Severstal North America have now been acquired by existing producers, including ArcelorMittal, Nippon Steel Sumitomo Metal Corp. AK Steel and Steel Dynamics Inc), we expect R&D to be heavily ramped up.

Steel companies’ attempts to improve advanced high-strength steel (AHSS) and other automotive sheet products are being driven by the higher margins the companies obtain from these grades, at a time when commodity-grade steel prices are under heavy downward pressure from global overcapacity.
In our view, these factors, to varying degrees, will all combine to damp down the rate of aluminium take-up within the automotive sector.

While there may be less weight of steel in a vehicle in ten years’ time (owing to downsizing and continued lightweighting with high-strength grades), there will be many more vehicles worldwide, so the overall market will continue to expand, and the opportunities that exist will be for the very high strength and more specialised steels, many of which cannot be substituted directly with aluminium.

There will, of course, be more opportunities for aluminium for body applications but forecasts should be kept in the realm of reality and relate to an informed perspective.

Brian Levich, Metal Bulletin Research

This theme and more are explored in detail in our special study, Strategic Prospects for Steel and Aluminium in the Automotive Sector. This exclusive and timely study explores the dramatic changes in the steel and aluminium industries and how they will evolve in countries around the world, with unique insights into pricing for automotive sector supply out to 2024.

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Metal Bulletin Research
Metal Bulletin Research (MBR) is a strategic consultancy and specialises in providing niche market research and data on the global metals/mining industry.

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Contact details for Brian Levich: blevich@metalbulletinresearch.com; + 44 207 556 6020