Aluminum Prices-Boon Boondoggle
1
Commentary Aluminum Prices- Boon Boondoggle Paul Campbell Alumax BOON The present pri- mary market in the United States is enough to give smiles to an industry that has literally strug- gled to survive the recent past.- The strength of the U.S. dollar versus foreign currency, the present inventory position that fab- ricators put themselves (and subse- quently the primary plants), and the general improvements in the user in- dustries certainly are seeing primary plants make long needed profits just as many were on the ropes. Corporate managements are second guessing things like power agreements tied to metal prices, tolling agreements, long- term fIxed price contracts, plant clos- ings and write downs, and many de- cisions made to manage for the downside. BOONDOGGLE Unfortunately, prices maybe at such a level that forces users to examine alternate materials and question dra- matic swings in price. Because of the recent past, the primary industry is at best cautiously optimistic with the potential attacks from plastics, other metals, and composites. We have seen some companies diversify to protect themselves from this situation by in- creasing their own involvement in al- ternate materials. Power prices in the U.S., including those tied to metal prices, couple with the above factors to form a potentially dangerous and possibly fatal duo if we at primary plants back away from hard choices about niches and directions. BOON AND BOONDOGGLE? The current market is attractive enough that companies are bringing idled capacities back into operation. Some of this capacity had been writ- ten off. The increase in supply is nec- essary because of metal allocations and expanded user markets. However, in the long run, the affect of this added capacity-if maintained-will be to put pressure on prices. NICHES AND DIRECTIONS The fact that P1020 sows and tee ingots are commodity products is a given. Common billet and many open mold products also fit this category. In dealing with these products, we will continue to compete with foreign competition that has cheaper power, cheaper labor, and various forms of subsidies. Our direction, as I see it, is to offer products that command higher prices (value added) and/or products backed by technical services, giving us mar- ket niches that, at least, maintain our market share during market down- turns. These services include many things such as varying chemistry and/or ho- mogenization practices, supporting customers with analyses, reacting quickly to problems and working con- fIdentially with customers on selec- tion of alloys that enhance customer's product performance. The services take advantage of both our technical back- ground and our nearness to markets. SPC One such service that deserves spe- cial mention is reduced product vari- ability through statistical process control (SPC). In the near future, all companies, domestic and foreign, driven by customer demands will have some sort of SPC program in place. SC'lme will have meaningful programs and resultant improved product var- iability and quality, and some com- panies will only give it window dressing while maintaining current quality levels. The technical compe- tence and education of our work force gives us the ability to be among the former. An effective SPC program must ac- complish at least one of two goals. Hopefully, both will be realized. SPC should improve product quality by reducing variation and enhance op- erator jobs by increased product re- sponsibilities, hopefully, making jobs more effIcient, more rewarding, and, in many cases, easier. DECISION TIME None of the above comments takes away from the progress made on plant efficiencies and productivities that have literally meant survival for many domestic plants. In fact, all avenues of "controllable" cost must continue to be pursued within the economic framework of enhanced primary products and services. The recent upturn in metal prices for U.S. primary aluminum is giving time, a welcome respite, to identify products, niches, and services where each company and, in many cases, each plant can take advantage. With the many different and confusing predic- tions on metal prices and demand, these hard choices cannot be delayed. Otherwise, when-not if-the market turns down, it will be deje vu. Many factors will determine the long term structure of the aluminum business in the U.S. We must now act both de- cisively and fIrmly on long-term di- rection. Even then there will be winners and losers. 32 JOURNAL OF METALS. November 1987
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Transcript of Aluminum Prices-Boon Boondoggle
Commentary
Aluminum Prices-Boon Boondoggle
Paul Campbell Alumax
BOON The present pri-
mary market in the United States is enough to give smiles to an industry that has literally strug-gled to survive the recent past.- The strength of the U.S.
dollar versus foreign currency, the present inventory position that fab-ricators put themselves (and subse-quently the primary plants), and the general improvements in the user in-dustries certainly are seeing primary plants make long needed profits just as many were on the ropes. Corporate managements are second guessing things like power agreements tied to metal prices, tolling agreements, long-term fIxed price contracts, plant clos-ings and write downs, and many de-cisions made to manage for the downside.
BOONDOGGLE Unfortunately, prices maybe at such
a level that forces users to examine alternate materials and question dra-matic swings in price. Because of the recent past, the primary industry is at best cautiously optimistic with the potential attacks from plastics, other metals, and composites. We have seen some companies diversify to protect themselves from this situation by in-creasing their own involvement in al-ternate materials.
Power prices in the U.S., including those tied to metal prices, couple with the above factors to form a potentially dangerous and possibly fatal duo if we at primary plants back away from hard choices about niches and directions.
BOON AND BOONDOGGLE?
The current market is attractive
enough that companies are bringing idled capacities back into operation. Some of this capacity had been writ-ten off. The increase in supply is nec-essary because of metal allocations and expanded user markets. However, in the long run, the affect of this added capacity-if maintained-will be to put pressure on prices.
NICHES AND DIRECTIONS
The fact that P1020 sows and tee ingots are commodity products is a given. Common billet and many open mold products also fit this category. In dealing with these products, we will continue to compete with foreign competition that has cheaper power, cheaper labor, and various forms of subsidies.
Our direction, as I see it, is to offer products that command higher prices (value added) and/or products backed by technical services, giving us mar-ket niches that, at least, maintain our market share during market down-turns.
These services include many things such as varying chemistry and/or ho-mogenization practices, supporting customers with analyses, reacting quickly to problems and working con-fIdentially with customers on selec-tion of alloys that enhance customer's product performance. The services take advantage of both our technical back-ground and our nearness to markets.
SPC One such service that deserves spe-
cial mention is reduced product vari-ability through statistical process control (SPC). In the near future, all companies, domestic and foreign,
driven by customer demands will have some sort of SPC program in place. SC'lme will have meaningful programs and resultant improved product var-iability and quality, and some com-panies will only give it window dressing while maintaining current quality levels. The technical compe-tence and education of our work force gives us the ability to be among the former.
An effective SPC program must ac-complish at least one of two goals. Hopefully, both will be realized. SPC should improve product quality by reducing variation and enhance op-erator jobs by increased product re-sponsibilities, hopefully, making jobs more effIcient, more rewarding, and, in many cases, easier.
DECISION TIME None of the above comments takes
away from the progress made on plant efficiencies and productivities that have literally meant survival for many domestic plants. In fact, all avenues of "controllable" cost must continue to be pursued within the economic framework of enhanced primary products and services.
The recent upturn in metal prices for U.S. primary aluminum is giving time, a welcome respite, to identify products, niches, and services where each company and, in many cases, each plant can take advantage. With the many different and confusing predic-tions on metal prices and demand, these hard choices cannot be delayed. Otherwise, when-not if-the market turns down, it will be deje vu. Many factors will determine the long term structure of the aluminum business in the U.S. We must now act both de-cisively and fIrmly on long-term di-rection. Even then there will be winners and losers.
32 JOURNAL OF METALS. November 1987
