Must-know: An overview of the steel versus aluminum debate

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The steel versus aluminum debate

Aluminum and steel compete against each other to some extent. They have some unique uses. However, in some applications, they compete against each other. One of them is the automobile industry. In this part of the series, we’ll discuss some of the basic differences between steel and aluminum.

auto increase in use

Understanding aluminum’s physical properties 

Many of aluminum’s uses come through its physical properties. Aluminum’s important properties include:

  • It’s lightweight—almost a third of steel
  • It’s malleable— it can be easily cast into different shapes
  • It’s corrosion resistant
  • It’s a good electricity conductor

These qualities gave aluminum leadership in aerospace. Aluminum also has leadership in electric wires and cables. It replaced steel cans a long time ago. Along with its traditional usages, the automobile industry has increased its aluminum demand.

Why aluminum content is increasing in cars 

The previous chart shows aluminum’s increased use in automobiles. Ford is expected to release an F-150 with a full aluminum body this year. The mini truck will be 700 lbs. lighter than the earlier version.

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By 2025, U.S. government standards mandate that automakers must increase corporate average fuel economy (or CAFE) to 54.5 miles per gallon (or mpg). This is up from 35.5 mpg by 2016. By using an aluminum body, the vehicle’s total weight can be brought down by ~30%. This automatically increases the vehicle’s fuel economy. Click here to learn more about fuel efficiency.

Using aluminum to make vehicles has its own nuances. There have to be new production lines for the automobile companies. Aluminum can’t be welded easily like steel. This reduces the mass shift to aluminum. Aluminum also costs more than steel. It’s more than double steel’s price. However, a slow and steady shift is happening.

Aluminum companies like Alcoa Inc. (AA), Century Aluminum (CENX), Kaiser Aluminum Corp. (KALU), and Constellium (CSTM) are optimistic about automobile companies’ increased demand. Another way to access the metals industry is through the SPDR S&P Metals and Mining ETF (XME).

The aluminum sector has improved in the past few quarters. In the next part of the series, we’ll look at how aluminum companies performed on Wall Street.

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