Why Alcoa is positioned well to serve the automotive industry

As discussed previously, automotive companies’ aluminum demand is expected to be strong. To fulfill the future demand from automotive companies, Alcoa (AA) is expanding its production capacities. Even metal service centers, like Reliance Steel & Aluminum (RS), increased their inventories. They realized the strong demand from automotive companies.

Currently, AA and RS are part of the SPDR S&P Metals and Mining ETF (XME).

Alcoa made three investments to capitalize on automotive companies’ expected demand. The previous chart shows the dynamics of the investments.

• Phase 1 – In the first phase, Alcoa completed an expansion project at Davenport. Alcoa’s investment in this expansion was $300 million.
• Phase 2 – In the second phase, Alcoa is working to expand its capacity in Tennessee. It’s a $275 million investment. Alcoa expects that the facility will be operational by mid-2015.
• Phase 3 – In the third phase, Alcoa is investing $380 million in a joint venture (or JV) in Saudi Arabia. In addition to can sheet mill, the plant will also produce coils for automotive companies. This facility is expected to be the lowest-cost smelter globally. We discussed the importance of this JV in Part 6 in this series.

Companies like Constellium N.V. (CSTM) and Century Aluminum (CENX) are also ramping up their production capacities to serve the demand from automotive companies.

The packaging sector is another key customer for Alcoa. In the next part of this series, we’ll discuss the demand from this sector in more detail.