Material Shortage Challenges

Business 2.0 and CNNMoney.com have named the Boeing 787 the "Smartest New Product." What does that mean? If you use 7075 aluminum plate or a number of other raw materials, you need to be smart to avoid production delays and cost overruns.

"It's been very tough the last 18 months," noted Kris Hutton of TW Metals. "On the demand side, aluminum allocations are tight because Airbus and Boeing are taking orders for delivery from 2005 into 2018."

Boeing took 354 orders worth more than $46 billion in 2005, and Airbus has strong demand for its A380. Both are taking record orders, and 2005 is the first year since 2000 that Boeing beat Airbus in new airplane orders. Both have long-term agreements with aluminum suppliers for material that is still in the ground.

Aluminum

For aerospace or defense uses, aluminum has to come from domestic sources, which puts pressure on U.S. smelters. German and French producers cut U.S. exports to meet European demand. Then factor in exploding growth and demand for raw materials in China, India and elsewhere, and a resulting shortage of alumina and recycled aluminum.

The result, combined with government demand, is that aluminum plate is very hard to come by, especially in thicker dimensions (two inches and up). Thinner plate can be found, but it is expensive; and, like lobster on the dinner menu, sold at market price.

A significant factor on the supply side, stated Hutton, is the reduction of melting sources over the past 18 months. The Bonneville Power Administration has pressured 10 smelters in the Pacific Northwest to help keep soaring energy prices under control.

McCook Metals shut down Longview Aluminum, leading to a shortage of about 10 million pounds annually. While some mills, like Kaiser (which has also struggled in recent years) and Amag, are increasing capacity to meet future needs, there is a strain on current supplies. Hard alloys, including 2024 and 7075, are harder to come by than softer alloys like 6061.

Hutton expects it will be two to three years before the aluminum plate market returns to where there is more adequate availability, similar to conditions experienced in mid-2004.

Coping Strategies

The only certain remedy to the current aluminum supply problems is to wait for the market to respond, leading to reduced demand and/or increased supply. However, there are options to consider to avoid significant delays or cost overruns:

• Plan ahead. Account for inflated pricing and long lead times when planning your production schedule, and build contingencies into your estimates. Two years ago, you could get a price and a delivery commitment for 7075 with one phone call. Now, you'll wait a week for a price, and much longer for delivery.
• Work with your engineering staff to see if another aluminum alloy might be compatible with the part you are producing. For example, will 6061 provide the strength and performance necessary?
• Evaluate the use of forged or cast aluminum, rather than rolled plate.
• Stay in touch with your metal distributor. When the market inevitably opens up, they can be prepared to put hard purchase orders in place, based on their understanding of your ongoing needs.

Next Issue

Aluminum is not the only raw material where supply is tight. Titanium costs – especially for tubing – have increased approximately 50 percent in the last 12-18 months, and lead times have gone to 68 weeks. For pH-grade 15/5 and 17/4 stainless steel bar, lead times are 54 weeks; and for 93/10 43/40 alloy bar, lead times are 64 weeks. Magnesium and Invar supplies are also tight.

The next issue of this newsletter will delve into the market conditions that have led to these supply challenges.