Aluminum Distributors Said Looking to Imports
By Anne Riley
Published: February 9, 2010
NEW YORK -- With a growing number of domestic aluminum mills pushing lead times out to the end of the second quarter, many North American distributors are beginning to lean more heavily on imports, service center sources told AMM.
"Historically, one of the advantages a domestic mill had over an offshore supplier was lead time. They could never compete with the price, but they had the lead time to their advantage," one North American distributor said, but with domestic lead times now extended to May or June, U.S. and Canadian suppliers no longer have an upper hand. "As the price continues to go up, that's going to invite more offshore metal into North America."
A source at a southern service center confirmed that as U.S. lead times are extended into summer, foreign material is gaining more traction. "Lead times are out about as far at the domestics as it is to get import, so you're going to see more orders going import," he said. "As a company makes a decision to buy import or buy domestic, they aren't going to be foolish and buy exclusively import at the sake of losing their domestic relationships. That said, they're going to be buying foreign because when the lead times are both out that far, you can't ignore the price differential."
And if the slowly recovering market suddenly grinds to a halt, that shift toward imports could become even more pronounced, he said. "If the market were to suddenly turn, those import orders are pretty much non-cancelable. The service centers would have to take the import tons-at the expense of the domestic mills."
But while sources in the aluminum distribution sector said imports are gaining market share, not everyone is making the shift. Lourenco Goncalves, chairman, president and chief executive officer of Metals USA Holdings Corp., for example, said that discarding domestic suppliers in favor of foreign ones can only destroy relationships down the line.
"We have very well-established relationships with the domestic smelters as well as with some international ones. We keep our number of suppliers in good shape, so we don't see a change at all," he said.
In addition to preserving supplier-distributor relationships, maintaining local suppliers also is important for securing higher-quality material, the second source said.
"Most of the import that's been coming has been coming from the Far East and it's not very good material; there's been a lot of rejection. The quality import that used to come from Europe and South Africa is not coming. We're seeing lower-quality product replacing the higher-quality product," he said, noting that U.S. distributors looking to bring in more foreign material "have been wrestling with that."
"We know someday foreign mills are going to get it, but right now they're struggling (to produce quality product)," he said. "That's why we try to maintain our domestic mill relationships-you need them for your quality product."
But even as some domestic distributors increase import orders, sources say the supply of distribution-ready material is tight. "Every supplier is on allocation. They don't like to use that word, but they're on allocation," the first source said, noting that the tightness of supply can be tied to lower capacity utilization and less overall primary production.
The second distributor source agreed that a tightness of supply may be buoying aluminum product prices. "Pricing has been more a function of the supply side being limited than the demand side being strong," he said.
But while tight supply may be the biggest factor supporting prices, a very modest increase in demand also is beginning to rear its head, sources said.
"The marketplace is still reasonably strong. I'm not going to say it's robust, but if you were to compare January of this year to January of last year it's better than that. But we're still struggling to find the market segment that's just blowing and going," the second source said.
"Demand is clearly picking up," Goncalves said, noting that inquires for brazing sheet for use in aerospace heating, ventilation and air conditioning (HVAC) are through the roof. "We are seeing a lot of activity in the aerospace industry. The commercial side of the business is not doing bad-the rest of the applications, like food equipment and automotive, everything is really heading up right now-but the biggest winner is clearly aerospace."
For the first source, however, aerospace is perhaps the weakest link in the demand chain. "It remains dead. It's not going anywhere. There is a lot of inventory in the system," he said, noting that he doesn't expect to see a turnaround in his aerospace business for another 12 to 18 months.
Building and construction demand also logged mixed reviews, with some service centers seeing an uptick in orders and others still feeling the pain.
"If aerospace is the brightest spot at this point, building and construction is the one lagging," Goncalves said.
But the second distributor said a turnaround in construction is in sight. "It's certainly improving over where it was last year, but it's all relative," he said. "It has still nowhere near come back to what would be a normal, healthy industry, but it was so low it had to come back."