From Wall Street Journal Europe 11 July 2013

Contest for Lighter-Weight Metals Helps Auto Makers

Steelmakers are fighting against auto industry's shift to aluminum by designing lighter-weight products.


Car makers turning to aluminum, at the expense of steel, to make lighter vehicles have steelmakers fighting back with major new investments to preserve market share in one of their most valuable markets.

The metals-contest comes as auto makers look to build lighter cars, which tend to be more fuel efficient, in order to meet new fuel-economy regulations. Languishing aluminum prices also are encouraging the automotive industry to switch metals.

For steelmakers, struggling with weak demand and over supply, a switch to aluminum poses a big threat because the automotive sector is the industry's second biggest customer—after construction—accounting for about 12% of total production, according to the World Steel Association.

"It's all about weight saving, and the associated costs that go with this. One of the main drivers is the environmental aspect," said Victoria Lockwood, a senior raw materials buyer at Jaguar Land Rover PLC, a unit of Tata Motors Ltd., 500570.BY +0.30% referring to government mandates for more fuel-efficient vehicles. "You can't do that if you're hauling a ton of steel," she said.

New emissions control standards coming in the U.S., European Union, India and China between 2015 and 2017, require vehicles cut pollutants and get better fuel mileage. A similar trend is under way in the aerospace industry where aluminum and new grades of ultrahigh purity steels are competing with carbon fiber reinforced plastics as aircraft makers reduce weight to save on fuel consumption.

Shedding weight is the best way to improve fuel economy. That has auto makers embracing more aluminum and high-strength steels. General Motors Co.'s GM +2.35% coming 2014 Silverado pickup uses aluminum engine blocks and hood. It also uses lighter, high strength steel in its cabin box.

Last year, the average passenger car contained between 120 kilograms and 150 kilograms of aluminum, according to International Aluminum Institute, compared with 40 kilograms to 80 kilograms in 1990. By 2025, the IAI expects new vehicles to have as much as 250 kilograms of aluminum.

Companies such as Alcoa Inc., AA +2.27% Novelis Inc. and Aleris International Inc. are making substantial investments in aluminum sheet rolling facilities in anticipation of the demand.

At the same time, steel producers such as ThyssenKrupp AG, TKA.XE +2.65%

ArcelorMittal SA, MT +5.57% Tata Steel Ltd. 500470.BY +1.89% and U.S. Steel X +2.25% have spent billions of dollars to ensure they can make lighter materials for auto makers, such as Advanced High Strength Steels, which allow car bodies to be thinner while keeping crash resistance at a high level.

"We are investing in automotive weight reduction in order to keep pace with the global competition and create the conditions for lower energy consumption and lower CO2 emissions," said Hans Ferkel, ThyssenKrupp Steel Europe senior vice president research & development. Last year, Thyssen invested €644 million ($823.5 million) to advance production of high strength and low weight steel for the auto industry. It has also launched a dedicated R&D program to cater for the sector.

"We believe that steel will remain the most important auto body material in the high-volume sector," Mr. Ferkel added.

Aluminum and steel have played tug of war for years to gain share in the car market. Aluminum is widely used for engine parts because its thermoconductivity allows speedier warm-up and acceleration, and it is a cheaper substitute to copper for vehicle radiators.

But the battle has really heated up now that technological advances have allowed production of thinner, lighter and yet more resistant aluminum sheet, which is competing with steel to make auto body.

Global consumption of aluminum auto body sheet is around 450,000 tons a year but could grow threefold by the end of the decade, said Phil Martens, chief executive of Novelis, which makes aluminum products for the automotive, beverage and consumer electronics industries.

The intensive use of aluminum in vehicles is growing more than 25% a year, signaling "a gigantic and permanent change" in the automotive industry, and while less than 1% of car bodies are currently made of aluminum, this should jump to about 2.5% by the end of the decade, Mr. Martens said.

In response to accelerating demand, Novelis is investing more than $400 million in expanding its sheet aluminum metal production facilities. Aleris also is investing $200 million to expand capacity, including in a new aluminum cold rolling plant in Belgium. And Alcoa is investing some $575 million in new rolling facilities in the U.S. alone to support growing demand.

"There is no choice. As long as we want to save energy and protect the environment, there is no other choice but to go to weight saving. Aluminum usage will grow," said Philippe Meyer, vice president and chief technology officer of Aleris Rolled Products Germany GmbH, an aluminum products producer.

Steel and cast iron represented 80% of the average car's weight in 2000 but its share will fall to less than half by 2020 because of the drive to reduce weight, according to Roger Emmott, managing director of UK-based steel consultancy Roger Emmott Associates Ltd. "There are very significant substitution dynamics…. You only need a certain percentage of steel to give body strength," he said.

While car makers such as JLR, Audi AG NSU.XE +0.38% and General Motors Co. are using more aluminum, some also note the use of new types of steel.

"Lightweight design has long been a top priority at Audi. It is one of the pillars of the brand," said Alex Fisk, a spokesperson for Audi, a unit of German auto giant Volkswagen VOW3.XE +1.32% AG. But, while the company is using more aluminum, with its top-of-the-range Audi A8 model made almost entirely of the metal, its A6 and A4 models are composite steel-aluminum constructions.

There is a similar contrast at JLR, which made its new Range Rover model primarily of aluminum but continues to use 100% steel for its Freelander and Evoque models.

"Steel is always going to be used for the smaller cars unless the bottom falls out of the aluminum market," says the company's raw materials buyer Ms. Lockwood.

At 2,160 kilograms, the new Range Rover is 410 kilograms lighter than its predecessor and eight times more fuel-efficient.

But the rise of aluminum in the automotive sector is forcing steel companies to up their game.

As the world's largest steelmaker, ArcelorMittal potentially has more to lose to aluminum than others, with the automotive industry representing about 20% of its global steel shipments.

To retain its share, the company says it has invested about €600 million in Europe over the past six years on new installations and equipment for developing its business with automotive customers. It also recently launched a new range of car doors that claim to offer a 34% weight saving over existing steel car doors.

Together with Ford Motor Co., F +1.50% ArcelorMittal developed a steel hydro-formed tube that saved six kilograms in each Ford Fusion sedans, for a total savings of 2.25 million kilograms in 2012, it said.

ArcelorMittal says lighter AHSS products now represent more than one fifth of its shipments to the auto industry in Europe and it expects this ratio to grow.

In the U.S., U.S. Steel and Kobe Steel 5406.TO +0.72% in May commissioned a $400 million plant in Ohio, to produce AHSS and Ultra High Strength Steel, the latest in a continuous investment strategy to develop these types of steel for the automotive market, a company spokeswoman said.

"We believe steel is the material of choice for the automotive industry," the U.S. Steel spokeswoman said. "It can deliver on fuel economy while meeting or enhancing passenger safety standards," she said
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