Increasing vehicle sales bode well for Alcoa
Alcoa investors – some key aluminum indicators you should track (Part 9 of 17)
Vehicles are important to the aluminum industry
In the previous parts of this series, we looked at indicators of the Chinese aluminum industry. Now we’ll take a close look at the key drivers of US aluminum demand.
The transportation sector is a major consumer of aluminum. It accounts for more than a third of aluminum consumption in North America.
Aluminum has found new uses in automobiles, from heat exchangers to wheels, engines, and hoods. The average aluminum content in vehicles has steadily increased and is now around 343 pounds.
Alcoa (AA) is a pioneer in supplying sheet products to the automobile industry. Constellium N.V. (CSTM) has also made its entry into this market with the acquisition of Wise Metals.
Vehicle sales rise
The above chart shows trends in vehicle sales in the United States. Vehicle sales in February were 16.16 million units on a seasonally adjusted basis. This is an increase of more than 5% over February 2014.
Lightweighting
Low interest rates, the launch of new vehicle models, and rising consumer confidence are some of the primary reasons for the uptrend in vehicle sales. An increase in vehicle sales is positive for aluminum companies.
Alcoa offers lightweighting solutions to automobile companies. Automobile companies have shown an inclination toward aluminum body vehicles. This helps them lightweight the vehicle and increase its fuel economy. Ford Motor Company (F) has been a lightweighting pioneer with its F-150 pickup truck.
Higher vehicle sales also benefit the SPDR S&P Metals and Mining ETF (XME). The fund has ~12% exposure to aluminum plays. Allegheny Technologies Incorporated (ATI) forms 3.42% of XME.
The nonresidential construction sector is another major consumer of aluminum. In the next part, we’ll go over the latest indicators of the nonresidential construction industry.
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