MI ANALYSIS: US fabricators highlight industry de-stocking

With the financial reporting season in full swing, there is a common theme emerging from US fabricators of aluminium products.

Aleris International reported a 12% year-on-year decrease in like-for-like Q1 2007 shipments. Lower shipments “were driven by weakness in North America due to customer inventory de-stocking and the steep decline in housing starts,” the company said.

Wise Metals noted that “the most significant driver holding back this quarter's profitability was the direct result of reduced production levels.” "This is owing to customer-announced intentions to undergo significant de-stocking of year-end inventories,” it said, adding it itself had de-stocked in the fourth quarter of last year and is only now in the process of rebuilding inventory levels to meet contracted volume commitments.

Wise said that Q1 shipments of can stock, rolled product and scrap fell only marginally to 169.3 million pounds from 169.9 million in the year-earlier period. But that comparison masks much larger changes by category. Can sheet shipments fell by 19% year-on-year due to a combination of customer de-stocking and “slightly lower” orders from existing customers resulting from “negotiations to improve pricing.”

Kaiser Aluminum represented an interesting exception to the rule, largely because it is more focused on the aerospace sector, which is still booming.

Its product shipments rose to 140.0 million pounds in Q1 07 from 137.7m pounds in the year-earlier period. But here again, there were two divergent trends at work. "The company continues to deliver strong results, led by robust demand for aerospace and defense applications partially offset by soft demand in ground transportation and other industrial applications for fabricated products," it said.

It’s worth pointing out that this de-stocking cycle seems to have been confined to the US. Aleris, for example, saw weakness in its home market offset by strength in the European market, where it now has significant exposure thanks to the acquisition last year of the Corus fabricated products business.

Shipments from the former Corus business were 311 million pounds in the quarter and benefited from “continued strength in shipments to aerospace customers, improved shipments of both rolled and extruded products to automotive applications, and general strengthening of the German and other European industrial economies.”