Why the automobile industry is important for metal companies

Mohit Oberoi, CFA - Author

Nov. 27 2019, Updated 5:17 p.m. ET

Automobile industry is important for metal companies

Automobile companies are one of the biggest metal product consumers. Steel and aluminum are widely used in the automobile industry. Apart from these two metals, fiber and plastics are also used to manufacture vehicles.

In this series, we’ll analyze automakers’ changing preferences. We’ll discuss how automakers turned the steel and aluminum industries into competitors. We’ll learn the various factors that are driving this change. In the end, we’ll analyze how vehicle lightweighting is an opportunity for the steel and aluminum industries.

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Steel has been automakers’ metal of choice 

The above chart shows the breakup of global steel consumption. As you can see, the transportation sector accounts for 16% of global steel consumption. The automotive sectort is the second largest steel consumer. The construction sector is the biggest steel consumer. It accounts for around half of global steel consumption.

Automobile companies use steel products for auto sheets and engine parts. Aluminum has been gaining popularity in the automobile industry. Previously, aluminum was mainly limited to heat exchangers and some engine parts. Automotive companies started producing vehicles with all-aluminum bodies.

Aluminum is a threat to steel

Aluminum is being used more in automobiles. It became a threat to steel. Steel companies—like US Steel Corp. (X), ArcelorMittal (MT), and AK Steel (AKS)—see aluminum as a threat to their business.

In contrast, aluminum companies—like Alcoa (AA)—see the automobile industry as a big opportunity for their business.

In the next part of this series, we’ll discuss some basic differences between steel and aluminum. It’s important to note that the SPDR S&P Metals and Mining ETF (XME) can give you exposure to both of these industries.


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