Alcoa narrows 2016 US automotive growth expectation

HOUSTON (ICIS)–Alcoa has narrowed the range for growth in the North American automotive end market this year to 1-2%, from previously 1-4%, the CEO of the US-based aluminium major said in an update on Tuesday.

Klaus Kleinfeld said that year-to-date to August 2016, North American automotive production was up 2.4%, to 11.9m units.

However, the North American automotive end market is “a tale of two cities”, with production of trucks up 7.4% and car production down 4.6%, he told analysts during Alcoa’s third-quarter earnings call.

Meanwhile, US automotive sales were up 0.4% year to date to September, and “we see a growing US inventory”, now at 65 days, up six days year on year, Kleinfeld said.

At the same time, auto and truck sellers have been hiking incentives to entice buyers.

On the car side, incentives made up 14% of the average trading prices. For trucks, they accounted for 9.3%. Generally, the industry considers 10% or less a “healthy” margin for incentives, Kleinfeld said.

Longer-term, Alcoa sees a “sustained demand picture” for cars and trucks in the US, given the number of older vehicles on the roads.

More than 100m vehicles are 12 years or older, out of a total 258m vehicles on the roads, he said. “So, there’s a big chunk that potentially is kind of sitting there as future demand,” Kleinfeld said.

The North American heavy truck and trailer market, however, presents “not a good picture”, with production down almost 27% year to date to August. Alcoa now expects a full-year decline in that market of 28-30%, compared with its previous forecast of a 26-28% decline.

Following the split-up of Alcoa, effective 1 November, the automotive and heavy duty truck business will be part of the Arconic company that Kleinfeld will be leading as CEO.

The company’s automotive business supplies a range of products and processes to car and truck makers, including closure sheet, brazing sheet, wheels, extruded aluminium products and automotive fasteners. In lightweight materials and metals, the company competes against plastics and polymer firms.

The automotive industry is a major global consumer of petrochemicals which contributes more than a third of the raw material costs of an average vehicle. ICIS tracks the movement of petrochemical raw material costs in auto production both globally and regionally with the weighted ICIS Basket of Automotive Petrochemicals (IBAP).

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