Must-know: Key differences between steel and aluminum

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Key differences between steel and aluminum

As discussed in the last part of this series, the aluminum intensity is increasing in vehicles. Before we analyze the possible reasons behind this paradigm shift, let’s understand some of the basic differences between steel and aluminum. You can play the steel and aluminum industries through the SPDR S&P Metals and Mining ETF (XME).

auto increase in use

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Aluminum’s physical properties

Many aluminum applications are driven by its physical properties. Aluminum has many important properties. It’s lightweight—it weighs almost a third of steel. It’s malleable—it can easily be cast into different shapes. It’s corrosion resistant. It also conducts electricity well. These qualities give aluminum leadership in aerospace. Aluminum is also important in electric wires and cables.

Aluminum’s physical properties led it to replace steel in beverage cans.

Increasing aluminum intensity in vehicles

Aluminum intensity is increasing in vehicles. This can be seen in the above chart. Aluminum companies—like Alcoa (AA) and Constellium (CSTM)—are investing in new plants to cater to this demand. Constellium reported an 82% increase in auto sheet shipments in the third quarter.

The steel industry is plagued with massive overcapacity. However, there’s a shortage of hot-rolled capacity to produce aluminum sheets for automobile bodies. Alcoa already contracted future sales from its planned capacity expansions.

Please be aware that steel companies—like ArcelorMittal (MT) and AK Steel (AKS)—are major suppliers to automobile companies. AKS gets more than half of its revenues from automotive companies.

What’s causing automobile companies to switch to aluminum? We’ll discuss this more in the next part of this series.

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