Metal market memo Essay

It’s looking more and more like a mixed year–both for basic
metals and the products they go into. Lest there be any doubt, refer to
the chart. Culled from more than 200 manufacturing industry forecasts
just released by Uncle Sam, it suggests wide variation, with 1985 demand
gains (all in physical volume or real terms) ranging from +28 percent
down to -5 percent. Here’s a more detailed rundown on the thinking
behind many of these projections by Washington’s top industry

Steel. Although prospects for consuming industries are good,
consumption may reach only 100-million tons this year–just 5.3 percent
over last year. True, shipments by the domestic industry may hit
83-million tons, but only if imports moderate significantly. And even
with shipments at that level, the industry would still be operating at
only about 80 percent of current reported capacity. This, in turn,
should keep prices from firming. So should the threat of increased
imports, despite the effort to aggressively enforce trade law.

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As for the balance of the decade, expect moderate growth in
consumption, with totals rising to 105- to 110-million tons/year by
1989. While this merely restores levels to prior decade averages, steel
should remain a basic industrial material. But, it will be used in a
more sophisticated manner, in a bigger economy, and will have to be
engineered carefully to satisfy end-user requirements.

Ferrous castings. Continued recovery from 1982’s severe
recession is expected this year, although gains will be at a lower rate
than ’84. With expected increases in output of autos and other key
industries, shipments are likely to reach 13-million tons (about 4
percent above last year).

Looking further ahead, growth during the rest of the decade will
depend greatly on changing production levels and technologies in user
industries. In any event, ferrous castings producers must find ways to
satisfy increasing demand for lighter weight, higher performance
products by the auto industry. They must also turn up new markets to
offset those lost by substitution, plus find a replacement market for
declining sales of ingot molds (the steel industry is rapidly moving to
continuous castings).

Given these factors, expect shipments of ferrous castings to
increase 4 percent annually, reaching 16-million tons by 1990.

Copper. Overall refined metal consumption should increase about 3
percent this year to about 2.4-million tons, with greatest strength
during the first six months. Although prices will increase, the boost
isn’t expected to bring quotes much above production costs. Such an
unprofitable scene could lead to further production cutbacks, with
primary 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 by
aluminum in auto radiators will contribute to about a 7 percent dip in
refined copper consumption by 1989. Fiber optic substitution also will
have an impact, but probably not a major one until the early ’90s.

Aluminum. Shipments will increase about 3 percent this year (to
16-billion lb), establishing a new record for the second year in a row.
Improved demand is expected in all major consuming markets, including
autos and housing. Nevertheless, the rate of increase will be well
under last year’s level, particularly in the transportation sector.

Longer term, shipments are forecast to increase at a compound
annual rate of 3.5 percent through 1989. One big plus: Use of the metal
in motor-vehicle production should reach about 200 lb/vehicle by 1990
(up from 137 lb currently). Substantial quantities of aluminum will be
used for radiators, displacing copper. Increased use in wheels, body
structures, engine components and other parts also is a certainty.

Moreover, aluminum has captured more than 90 percent of the
beverage can market, making containers and packaging the metal’s
largest end-use. A potentially large market exists for food containers
as well; however, increasing aluminum’s current 4-percent market
share may be a lengthy, difficult task.

Lead. The combined effects of a moderating economy, a substantial
decline in leaded gasoline, and less lead per battery, are taking their
toll, causing a 2.5 percent drop in 1985 lead consumption to about
1.24-million tons. The negative impact of less lead in batteries is
seen by the fact that purchases by this key user industry will be off
1.7 percent (to only 870,000 tons), despite unit demand for batteries
increasing a percentage point or so.

Over the longer pull, the industry won’t show much
improvement. At best, consumption should grow less than one percent
annually. Thus, total use should rise to only about 1.26-million tons by
1989. Lead use in batteries will continue to be the largest end-use
sector, growing as other end uses shrink. Nonetheless, the trend toward
less lead per battery will continue as producers vie to increase
performance per pound of battery.

Zinc. Moderating economic growth should slow the recent surge in
slab zinc demand. A projected decline in residential construction,
offset by modest increases in nonresidential building and motor vehicle
output, should result in a one-percent increase in use to an estimated
970,000 tons this year.

Sustained growth is still likely over the longer haul with
consumption 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 single
largest application, although competition from other protective coatings
should intensify.

Titanium. Total shipments of mill products in ’85 should grow
to 46- to 48-million lb, or up about 12 percent from ’84. Military
aircraft demand, accounting for over 40 percent of this, will remain
strong as material continues to be delivered for the B-1 bomber. The
demand from the industrial sector also should hold firm this year, with
a 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 of
commercial aircraft are replaced by more fuel-efficient, quieter planes.
Supplies look to be more than adequate, though, with the recent
expansion of global capacity of sponge ensuring price moderation. This
should help titanium compete with alternate materials.

Nickel. Domestic consumption will be up about 10 percent this
year, to around 160,000 tons. Continued improvement in consumer demand
should encourage more capital spending, and hence increase demand for
machinery–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 to
about 187,000 tons by 1989. During the next 5 to 10 years, promising
sources of demand will come from new plant and equipment, pollution
abatement needs, and aerospace and defense industries.

Tungsten. Consumption should be sustained at near prerecession
levels, with about a 5-percent gain seen for this year. Long-run
growth, however, will slow because of reduced needs in some applications
and stagnant end-use industries. Carbide use in machining applications,
for example, is slowing because recent technological breakthroughs
prolong tool life, increasing efficiency of tool use.

No problems with supplies, though. Current world mine output is
substantially below capacity, and several large mine projects (in
Canada, China, Bolivia, and the UK) also could help meet sustained
demand increases.

Nonferrous castings. Continued recovery is anticipated, though at
a lesser rate than ’84. Because of increased auto production and a
higher percentage of lightweight nonferrous castings used in each car,
this industry will be the most significant market for nonferrous
castings. Overall casting shipments should rise 8 percent this year, to
2.9-billion lb.

Long-term prospects are good. Shipments are predicted to increase
at a 5-percent annual rate through the remainder of the decade. But,
strong global competition for the US castings market is expected during
the next few years, and imports may increase to the extent that domestic
output will suffer.

Metalworking equipment. The combined shipments of several
subindustries making up this group will grow about 6 percent this year.
The machine-tool and accessories segment will share this growth, but
continue operating well below capacity because of imports (expected to
show still another rise in ’85).

Looking at each metalworking subgroup, here’s what to expect
in real 1985 shipment gains: Metalcutting machine tools (5.5 percent);
metalforming machine tools (6.2 percent); tools, dies and jigs (9.6
percent); power-driven hand tools (7.0 percent); foundry equipment (10.3
percent); industrial heating equipment (8.6 percent); and welding apparatus (4.8 percent).

General industrial machinery. An overall real growth is
anticipated, which is a bit under last year’s 5-percent advance.
Individual subgroups shape up as follows: Construction machinery (5.0
percent), pumps and compressors (5.0 percent), combustion engines (7.0
percent), and refrigeration and heating equipment (3.0 percent).

Special industrial machinery. Figure on a 5-percent real-shipment
advance–a bit more than last year’s 4.3 percent increase. Exports
will grow about 11 percent, accounting for about 25 percent of total
shipments. Imports will grow about the same, which is less than last
year’s 25-percent jump.

More detail on subgroup shipping gains follows: Farm machinery (5.0
percent), mining machinery (6.7 percent), oil field machinery (6.7
percent), food products machinery (3.2 percent), textile machinery (3.2
percent), paper industries machinery (3.6 percent), and printing trades
machinery (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. Imports
will expand by almost 19 percent, following a jump of 35 percent in
’84. As with other areas, subgroup-by-subgroup growth trends show
significant variation, with ’85 gains estimated as follows: Screw
machine 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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