Why steel companies are jittery about aluminum

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Increasing use of aluminum in automobiles

Previously in this series, we covered the short-range outlook for the steel industry released by the World Steel Association, or worldsteel. We also looked at key indicators to watch if you’re an investor in the steel sector. Another developing theme in the metals industry is the increasing use of aluminum in vehicles.

Currently, steel is the major raw material used in automobile manufacturing. Globally, about a quarter of all steel is consumed by the automotive sector. After construction, the automobile sector is the second-biggest steel consumer.

auto increase in use

Steel companies are jittery about aluminum

World Steel Dynamics, or WSD, is a leading information and consulting company in the steel industry. WSD presented a report at worldsteel’s annual conference about the penetration of aluminum in the automobile industry.

The very fact that this report was discussed during the worldsteel conference underscores the threat that aluminum poses for the steel industry.

Increasing use of aluminum in automotive

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The chart above shows the increasing use of aluminum in automobile production. As you can see, aluminum has found new uses in automobiles since heat exchangers in the 1980s.  Aluminum today is used to make wheels, engines, and hoods. The average aluminum content in vehicles has grown steadily to reach its current 343 pounds. Aluminum companies expect this number to increase even further as more automakers turn to aluminum bodies for their vehicles.

But what are the factors behind this shift in demand from automotive companies? How are steel companies such as ArcelorMittal SA (MT), United States Steel Corporation (X), AK Steel Holding Corporation (AKS), and Nucor Corporation (NUE) adapting to this challenge? We’ll look at this, next.

For your information, investment in both the steel and aluminum industries is made possible through the SPDR S&P Metals and Mining ETF (XME).

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