Vehicle lightweighting could be an opportunity for steel plays


Nov. 27 2019, Updated 5:16 p.m. ET

Vehicle lightweighting—an opportunity for steel plays

Vehicle lightweighting is an opportunity for steel and aluminum plays. The aluminum industry’s opportunity is massive. Globally, ~150 million tonnes (or Mt) of steel finds its way into vehicles. This is more than three times global aluminum production. It’s no wonder aluminum plays—like Alcoa (AA) and Century Aluminum (CENX)—are optimistic about the demand from automobile companies.

However, vehicle lightweighting also presents opportunities for steel plays.


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High-strength steel is an opportunity for steel plays

Vehicle lightweighting is definitely the theme in the automobile industry. Automobile companies can either move to aluminum or use more high-strength steel products.

The high-strength steel products are value-added products. Please be aware that value-added products sell at higher prices—compared to other steel products. These products increase steel plays’ profit margins. This is an opportunity for steel plays to increase the share of value-added products in their portfolio. While steel is a commodity product, the value-added products can even be patented. This can help steel companies gain a competitive edge.

Our take on vehicle lightweighting

The automobile industry is set to change with the recent lightweighting initiatives. The aluminum industry will benefit from this trend. However, it’s also an interesting opportunity for steel companies.

US Steel Corp. (X) already took the initiative by hiring an automobile industry expert to lead its automotive operations. Others steel companies—like AK Steel (AKS)—might follow this trend as well.

For investors, the SPDR S&P Metals and Mining ETF (XME) is a good alternative to play this proxy war. XME provides exposure to aluminum and steel industries. It’s an interesting play on the metals industry.


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