Kaiser Aluminum, a supplier of aluminium to Airbus, Boeing, Bombardier Aerospace and Lockheed Martin, has introduced energy surcharges applicable to all new orders of its fabricated products, serving notice that an era of restrained growth in aluminium prices may be drawing to a close.
Kaiser Aluminium chief executive Jack Hockema cites "the extraordinary rise" in prices of natural gas, electricity and diesel fuel for the surcharges. According to US Energy Information Administration data, the average price of diesel rose 58% between May 2007 and May 2008. In the same period, the average price of natural gas and that of electricity each rose 36%.
As the surcharges are based on US Department of Energy data at a two-month lag, customers placing new orders this month will incur surcharges based on the May-to-May energy price rises. A surcharge of $0.104/kg ($0.047/lb) applies to the 2xxx and 7xxx aluminium alloys deployed in high-grade aerospace applications. A market analyst estimates Kaiser's share of the aerospace aluminium market at 15%.
Many Kaiser customers will not immediately be affected by the surcharges, having signed long-term fixed-rate contracts. New customers may, however, find higher prices hard to avoid, with analysts predicting that other aluminium suppliers will follow Kaiser's lead. "For fabricated downstream products, look for a lot of cost pass-through," says John Hill, director of metals research at Citigroup. "Power surcharges are something that has been relatively common in the alloys world for years but has not been common in aluminium or carbon steel. Given the run-up in energy costs, I'd expect to see more of it, not less."
In price terms, aluminium is considered by analysts to be a laggard in the metals markets, perhaps surprisingly given that its production is highly energy intensive. "In the last five years, every other metal has gone up fourfold, fivefold, tenfold, whereas aluminium has gone up maybe 150%," says UBS head of resources research Glyn Lawcock. "Aluminium companies have really suffered in terms of margin squeeze."
Consulting firm AeroStrategy has estimated total aerospace aluminium for 2009 at around 291 million kg. If Kaiser's July surcharge were applicable to every manufacturer's aluminium deliveries, the industry would see its material costs rise by more than $30 million.
Source: Flight International
