Metal market memo Essay

It’s looking more and more like a mixed year–both for basicmetals and the products they go into. Lest there be any doubt, refer tothe chart. Culled from more than 200 manufacturing industry forecastsjust released by Uncle Sam, it suggests wide variation, with 1985 demandgains (all in physical volume or real terms) ranging from +28 percentdown to -5 percent. Here’s a more detailed rundown on the thinkingbehind many of these projections by Washington’s top industryanalysts. Steel. Although prospects for consuming industries are good,consumption may reach only 100-million tons this year–just 5.3 percentover last year.

True, shipments by the domestic industry may hit83-million tons, but only if imports moderate significantly. And evenwith shipments at that level, the industry would still be operating atonly about 80 percent of current reported capacity. This, in turn,should keep prices from firming. So should the threat of increasedimports, despite the effort to aggressively enforce trade law. As for the balance of the decade, expect moderate growth inconsumption, with totals rising to 105- to 110-million tons/year by1989. While this merely restores levels to prior decade averages, steelshould remain a basic industrial material. But, it will be used in amore sophisticated manner, in a bigger economy, and will have to beengineered carefully to satisfy end-user requirements.

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Ferrous castings. Continued recovery from 1982’s severerecession is expected this year, although gains will be at a lower ratethan ’84. With expected increases in output of autos and other keyindustries, shipments are likely to reach 13-million tons (about 4percent above last year). Looking further ahead, growth during the rest of the decade willdepend greatly on changing production levels and technologies in userindustries. In any event, ferrous castings producers must find ways tosatisfy increasing demand for lighter weight, higher performanceproducts by the auto industry. They must also turn up new markets tooffset those lost by substitution, plus find a replacement market fordeclining sales of ingot molds (the steel industry is rapidly moving tocontinuous castings). Given these factors, expect shipments of ferrous castings toincrease 4 percent annually, reaching 16-million tons by 1990. Copper.

Overall refined metal consumption should increase about 3percent this year to about 2.4-million tons, with greatest strengthduring the first six months. Although prices will increase, the boostisn’t expected to bring quotes much above production costs. Such anunprofitable scene could lead to further production cutbacks, withprimary refined copper output decreasing 7-percent during 1985. Looking beyond that, declines should continue throughout the’80s, but at a lower rate. Replacement of the red metal byaluminum in auto radiators will contribute to about a 7 percent dip inrefined copper consumption by 1989. Fiber optic substitution also willhave an impact, but probably not a major one until the early ’90s.

Aluminum. Shipments will increase about 3 percent this year (to16-billion lb), establishing a new record for the second year in a row.Improved demand is expected in all major consuming markets, includingautos and housing. Nevertheless, the rate of increase will be wellunder last year’s level, particularly in the transportation sector. Longer term, shipments are forecast to increase at a compoundannual rate of 3.5 percent through 1989. One big plus: Use of the metalin motor-vehicle production should reach about 200 lb/vehicle by 1990(up from 137 lb currently). Substantial quantities of aluminum will beused for radiators, displacing copper.

Increased use in wheels, bodystructures, engine components and other parts also is a certainty. Moreover, aluminum has captured more than 90 percent of thebeverage can market, making containers and packaging the metal’slargest end-use. A potentially large market exists for food containersas well; however, increasing aluminum’s current 4-percent marketshare may be a lengthy, difficult task. Lead. The combined effects of a moderating economy, a substantialdecline in leaded gasoline, and less lead per battery, are taking theirtoll, causing a 2.5 percent drop in 1985 lead consumption to about1.24-million tons.

The negative impact of less lead in batteries isseen by the fact that purchases by this key user industry will be off1.7 percent (to only 870,000 tons), despite unit demand for batteriesincreasing a percentage point or so. Over the longer pull, the industry won’t show muchimprovement. At best, consumption should grow less than one percentannually. Thus, total use should rise to only about 1.26-million tons by1989. Lead use in batteries will continue to be the largest end-usesector, growing as other end uses shrink.

Nonetheless, the trend towardless lead per battery will continue as producers vie to increaseperformance per pound of battery. Zinc. Moderating economic growth should slow the recent surge inslab zinc demand. A projected decline in residential construction,offset by modest increases in nonresidential building and motor vehicleoutput, should result in a one-percent increase in use to an estimated970,000 tons this year. Sustained growth is still likely over the longer haul withconsumption expected to advance at a bit more than two percent a year.In 1989, for example, usage could approach the 1.1-million ton mark,equalling 1979’s peak.

Galvanizing will continue as the singlelargest application, although competition from other protective coatingsshould intensify. Titanium. Total shipments of mill products in ’85 should growto 46- to 48-million lb, or up about 12 percent from ’84.

Militaryaircraft demand, accounting for over 40 percent of this, will remainstrong as material continues to be delivered for the B-1 bomber. Thedemand from the industrial sector also should hold firm this year, witha possible pick-up in the desalination market. Meantime, demand for civilian aircraft, which increased last year,is expected to continue through the rest of the decade as fleets ofcommercial aircraft are replaced by more fuel-efficient, quieter planes.Supplies look to be more than adequate, though, with the recentexpansion of global capacity of sponge ensuring price moderation. Thisshould help titanium compete with alternate materials. Nickel. Domestic consumption will be up about 10 percent thisyear, to around 160,000 tons.

Continued improvement in consumer demandshould encourage more capital spending, and hence increase demand formachinery–a major user of nickel and its alloys. Long-term prospects aren’t bad either. From a 1984 base,primary nickel consumption should rise about 2.6 percent annually toabout 187,000 tons by 1989.

During the next 5 to 10 years, promisingsources of demand will come from new plant and equipment, pollutionabatement needs, and aerospace and defense industries. Tungsten. Consumption should be sustained at near prerecessionlevels, with about a 5-percent gain seen for this year. Long-rungrowth, however, will slow because of reduced needs in some applicationsand stagnant end-use industries. Carbide use in machining applications,for example, is slowing because recent technological breakthroughsprolong tool life, increasing efficiency of tool use.

No problems with supplies, though. Current world mine output issubstantially below capacity, and several large mine projects (inCanada, China, Bolivia, and the UK) also could help meet sustaineddemand increases. Nonferrous castings. Continued recovery is anticipated, though ata lesser rate than ’84.

Because of increased auto production and ahigher percentage of lightweight nonferrous castings used in each car,this industry will be the most significant market for nonferrouscastings. Overall casting shipments should rise 8 percent this year, to2.9-billion lb. Long-term prospects are good. Shipments are predicted to increaseat a 5-percent annual rate through the remainder of the decade. But,strong global competition for the US castings market is expected duringthe next few years, and imports may increase to the extent that domesticoutput will suffer.

Metalworking equipment. The combined shipments of severalsubindustries making up this group will grow about 6 percent this year.The machine-tool and accessories segment will share this growth, butcontinue operating well below capacity because of imports (expected toshow still another rise in ’85). Looking at each metalworking subgroup, here’s what to expectin real 1985 shipment gains: Metalcutting machine tools (5.5 percent);metalforming machine tools (6.2 percent); tools, dies and jigs (9.

6percent); power-driven hand tools (7.0 percent); foundry equipment (10.3percent); industrial heating equipment (8.

6 percent); and welding apparatus (4.8 percent). General industrial machinery. An overall real growth isanticipated, which is a bit under last year’s 5-percent advance.Individual subgroups shape up as follows: Construction machinery (5.0percent), pumps and compressors (5.0 percent), combustion engines (7.

0percent), and refrigeration and heating equipment (3.0 percent). Special industrial machinery. Figure on a 5-percent real-shipmentadvance–a bit more than last year’s 4.3 percent increase. Exportswill grow about 11 percent, accounting for about 25 percent of totalshipments. Imports will grow about the same, which is less than lastyear’s 25-percent jump. More detail on subgroup shipping gains follows: Farm machinery (5.

0percent), mining machinery (6.7 percent), oil field machinery (6.7percent), food products machinery (3.2 percent), textile machinery (3.

2percent), paper industries machinery (3.6 percent), and printing tradesmachinery (4.0 percent).

Metal components. A 6.4-percent real-growth rate is projected for’85, down slightly from the 6.

9-percent figure last year. Importswill expand by almost 19 percent, following a jump of 35 percent in’84. As with other areas, subgroup-by-subgroup growth trends showsignificant variation, with ’85 gains estimated as follows: Screwmachine products (10.0 percent), industrial fasteners (3.0 percent),valves and pipe fittings (7.1 percent), and ball and roller bearings (6.0 percent).

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