FEATURE: US aluminum auto demand recovery seen in Q2, but H2 outlook uncertain

US aluminum producers saw shipments to the automotive sector recover by the end of the second quarter despite significant declines in automotive segment sales during the period as coronavirus pandemic restrictions forced several manufacturer shutdowns in late March, but the demand outlook for the rest of 2020 still remains unclear.

Novelis CEO Steven Fisher said the company's North American automotive aluminum sheet business nearly returned to pre-pandemic levels in July after original equipment manufacturers restarted production in May, but the positive trends did not necessarily set a precedent for the rest of the year.

"We're not going to give any further guidance in the second half of the year," Fisher told industry analysts during a call Aug. 12, "We feel good about our second quarter, and I think we have to all wait and see what happens as it relates to various impacts of COVID in economies as we get into the second half of the year."

Novelis' total rolled aluminum product shipments slipped 7% year over year to 774,000 mt during its quarter ending June 30, but the company said its automotive-specific sales for the quarter were down 50%.

Constellium CEO Jean-Marc Germain shared similar sentiments regarding the automotive end market following lower sales in the quarter and returning demand in June.

"While demand from our customers increased significantly in June, we have experienced uneven demand for our products as a result of supply chain challenges and COVID-19 hotspots," Germain told investors July 22. "While we are optimistic about automotive demand in the back half of 2020, the demand for our products will be dependent on the level of production at the OEM."

Constellium's shipments from its automotive structures and industrial segment in Q2 fell 33% year over to 44,000 mt, and its packaging and automotive rolled product sales fell 23% in the same period to 221,000 mt.

Based in Paris, Constellium operates multiple aluminum plants in the US.

Auto end-market shows some optimism

Despite lower sales in the quarter, some aluminum producers expressed optimism regarding automotive industry demand recovery in the second half of the year.

Arconic said automotive OEM production halts negatively impacted the company's ground transportation business, with Q2 organic revenue in the segment plummeting 57% compared to the year-ago period, according to an investor presentation.

The Pittsburgh-based aluminum producer's overall shipment revenue in Q2 slid 38% to $1.2 billion, but CEO Tim Myers said the company expected healthy recovery in the automotive end market for the remainder of the year and into 2021, with H2 2020 demand possibly reaching H2 2019 levels.

"The projection for 2020 North American automotive production is 12.6 million vehicles, increasing to 14.6 million vehicles in 2021, which would be an increase of 15%," Myers told analysts during a call Aug. 4, referencing IHS Markit data.

Kaiser Aluminum said most of its automotive industry-focused facilities have recently ramped up production after customers in the sector resumed operations. With the company also securing several key contracts for new automotive programs, projections looked strong going into H2, according to Chief Operating Officer Keith Harvey.

"We anticipate these and other new programs previously awarded will begin to ramp up in the second half of 2020 and will continue to drive growth in 2021 and beyond," Harvey said July 23. "As we look to the second half of 2020, we anticipate demand for our automotive applications will rebound from the weak second quarter 2020 with value-added revenue returning to a pace similar to the first quarter of 2020."

Kaiser's value-added revenue from automotive aluminum extrusions decreased 58% to $9 million in Q2 compared with sales in the same period last year, according to its quarterly earnings report.

Smelters see slight uptick in value-added output

Primary aluminum smelter Alcoa said it began seeing some improvement in value-added foundry alloy orders in June and July as automotive production in Europe and North America resumed after production outages.

"As we look where we stand right now in July, I'd argue that both in Europe and in North America, we really are starting to see those 'green shoots,' and we are starting to see that our customers are talking about more and more ability to reconnect with their automotive customers," Alcoa CEO Roy Harvey told investors during the company's Q2 earnings call in July.

Like most smelters, Alcoa previously reported a shift in output from value-added products to more commodity-grade ingot production as demand plunged in key end markets at the end of Q1 and beginning of Q2.

Century Aluminum CEO Michael Bless said there was an "encouraging pickup" in extrusion and foundry activity in the US during June and July, driven by returning demand from automotive and some construction customers. However, market recovery in different global regions was still progressing at different rates, and the impact to the company's value-added revenue was limited, he added.

"Obviously in all these markets, the recovery is still uneven," Bless said Aug. 5. "All this said, customers, particularly in the US, do remain somewhat cautious. Our run rate of value-added product orders in the third quarter thus far is showing only marginal pickup from Q2."