Nonferrous

Taking the Gas Pipe

A combination of factors is making the secondary aluminum business a depressing place to be. One of the more helpless feelings is being caused by natural gas prices operators are paying to fire up their equipment.

“Our gas price has increased three-fold,” says one Midwestern source in the secondary aluminum business. “You’re talking costs that went from $150,000 per month to $500,000. Even if you’re making sales, how do you pay for energy costs?”

The escalating production costs came at a time when margins were already razor thin, by most accounts. “Margins are extremely tight, and sales are slow,” says one secondary ingot maker.

Wabash Alloys has announced shutdowns of up to four of its smelters, and other operators have temporarily shut off furnaces at their facilities. “You like to keep the furnaces running at all times, but we finally cut off a couple of furnaces to compensate for the fuel costs,” says one aluminum scrap-melting furnace operator.

To add further discouragement, near-term forecasts by the auto industry and other manufacturers who provide the end markets for aluminum are not encouraging. Durable goods manufacturers are forecasting not only slower sales for the first half of 2001, but many are preparing for a similar sales climate in the second half of the year.

“I don’t think you’ve seen the last of it,” one source says of the shakeout occurring within the secondary aluminum market.

“These conditions are going to weed the weaker companies out. There’s just no profit structure right now. It’s affecting bigger and smaller operators.”

Initial April orders, combined with the national manufacturing indexes and forecasts, are not providing a reason to change expectations. “I don’t see anything to be optimistic about for the next 30 or 60 days,” says the ingot maker. “There is a trickle-down affect from the sale and production of finished goods, so we may be in for a few more months of slower going.”