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By Stuart Burns

A slightly provocative headline in the WSJ asked if the auto industry will essentially ride to the rescue of the aluminum industry by providing the largest growth opportunity for the industry since beverage cans moved from steel to aluminum back in the 1970s.

The answer could well be yes, but it won’t be a simple process.

Like the move from can production using aluminum rather than steel, new production techniques and equipment will be required, but the process is many times more complicated for autos than cans.

As the article points out, some 15 different alloys are used in the latest generation of aluminum-bodied cars or light trucks, and the production process requires rivets and adhesives rather than welding for steel. But the imperative is clear: mandated to reduce emissions and improve fuel economy, automakers are turning to weight reduction as much as engine development to achieve their goals – and that represents a major opportunity for the aluminum industry.

Auto industry experts say a 10% reduction in a vehicle’s weight allows for smaller power-trains and leads to a 7% improvement in fuel economy. Not that the majors like Novelis and Alcoa (NYSE:AA) don’t know that; both have invested about $1 billion last year in new or upgraded rolling facilities.

Novelis is spending $550 million to upgrade plants in Germany and China, as well as Oswego by Lake Ontario, to produce aluminum for cars. Alcoa is expanding plants in Iowa and Tennessee, as well as its new Saudi Arabian rolling mill, with investments totaling $575 million, according to the WSJ.

The WSJ quotes sources that say the market for body sheet aluminum is currently worth around $300 million a year, but if there is a major shift to go all-aluminum, by 2025 it could be over $7.5 billion. That sounds like a huge “if,” not least because steel producers are fighting back, investing in high-strength steels that can be used in thinner gauges and hence lower vehicle weights without the accompanying cost and complexity of changes to production facilities and supply chains.

But Ford’s (NYSE:F) decision (some say brave, a few say foolhardy, but only time will tell) to switch their largest-selling model – indeed, the USA’s largest-selling model – from a steel body to an all-aluminum body this year is likely to tug the rest of the industry in that direction if sales take off, as Ford expects.

Source: Why Alcoa Inc., Novelis Are Stoked About An Aluminum Pickup