Market Smarts: An aluminum producer and an upper-tier automotive supplier fast forward with multi-material strategies

Modern Metals

Our world is so interconnected that when a smelter idles in Iceland, the ripple effect could quickly lead to a shortage of premium billets in France.

We picked two prominent names as examples of companies that appear able to adapt very quickly—despite their scale—to react to what happens in real time, in terms of demand and supply and technological innovation. The brands are Alcoa Inc. and Shiloh Industries Inc. The first produces raw and finished aluminum, titanium and other products, backed by engineering solutions. The second has pushed itself beyond stamping out blanks for a short list of U.S. carmakers to making value-added, in-demand complete systems for a much broader range of global vehicle builders.

Alcoa Inc.’s chairman and chief executive officer, Klaus Kleinfeld, went over the Pittsburgh-based company’s annual performance during a Jan. 12 earnings call.

“When you look at our Global Rolled Products (GRP) business, auto sheet shipments are up 18 percent,” Kleinfeld told investors. “We continue to shift the [product] mix to higher value, higher margin products, and this has been driving a 90 percent year-over-year increase in adjusted [profit] per metric ton.”

Citing the capacity and capabilities provided by the acquisitions of RTI International Metals and Firth Rixson, Kleinfeld said Alcoa last year won multi-year aerospace contracts valued at $9 billion, which was more than twice the volume awarded during 2014.

Alcoa has “basically used every lever you can think of” to mirror gyrating market conditions, including “fixing, selling, curtailing, closing [assets, and] changing the portfolio.” Upstream in the aluminum supply chain, for example, “once all the announced refinery and smelting curtailments or closures are completed, 25 percent of our refining capacity and 42 percent of our smelting capacity will be closed, curtailed or sold.”

The value-added (midstream and downstream) parts of the business are “basically advanced multi-material product and solutions providers,” Kleinfeld told shareholders.

Yes, Alcoa has always been an integrated company but today, it seems to have something to offer virtually any material-hungry industry.

“GRP consists of aerospace and automotive products, structured products, brazing and commercial transportation, industrial, micro-mill products (which is just ramping up), global packaging. We then come to power and propulsion, fastening systems and rings, forgings and extrusions, titanium and engineered products.” Another unit sells into building and construction and wheeled and transportation systems. The “magic sauce” that holds these business lines together, said Kleinfeld, consists of joint technology plus talent.

“Through innovation and acquisition, we have created a very strong portfolio,” and Alcoa has widened its share in numerous end markets. “Firth Rixson alone doubled [our] content on jet engines and provided us with processes we didn’t have before. RTI has given us access to titanium.” Its integration within Alcoa is ahead of plan and “performing better than we expected.”

Capitalizing on trends

At Shiloh Industries Inc., Valley City, Ohio, President and CEO Ramzi Hermiz cites moves by automakers to “add content to the vehicle to improve safety, technology, comfort and entertainment, [which] tends to simultaneously add weight. This content-to-weight correlation is also seen in the industry’s move toward autonomous driving. Shiloh continues to capitalize on this trend by collaborating with our OEM and Tier 1 partners to lightweight the vehicle, effectively offsetting the weight of additional technology-rich content.”

During the company’s Jan. 14 earnings call with shareholders, Hermiz explained how Shiloh keeps moving “forward on our strategy to develop and commercialize new proprietary technology, expand our suites of products and establish a global presence.”

Much like Alcoa, Shiloh won significant pieces of new business last year and the momentum is expected to continue through the end of this decade. It is matching market requirements by diversifying the customer base and broadening capabilities.

“We see more and more customers seeking lightweighting solutions for their vehicles with products manufactured from aluminum, magnesium and steel. Shiloh continues to develop its lightweighting portfolio and now has a product offering inclusive of each of these materials,” Hermiz explained.

“Our ability to design, engineer and deliver a multi-material solution is critical for future vehicle platforms. An example is the new Volvo XC90, which was awarded Motor Trend’s SUV of the Year for 2016 and also won North American Truck of the Year. In total, Shiloh has more than $130 worth of content per vehicle ranging from steel brackets and aluminum shield to magnesium cross car beams. Very few suppliers have the capability to deliver this type of comprehensive solution set,” he claimed.

In 2015, new business wins exceeded $1.3 billion over the life of program contracts, with more than 60 percent focused on lightweighting technologies such as cast aluminum transmission components, ultra-lightweight magnesium cross car beams and laser-welded frames.

Shiloh secured new customers in Asia, Europe and North America last year. A new line built in China is exporting to Korea; its North American plants are shipping to customers in Europe. “We had a record 527 product launches and production approvals in 2015 compared to 175 in 2014,” Hermiz noted.

All this shows Shiloh has moved well beyond blanking commodity grade steels. “We are innovating new multi-material products,” Hermiz informed investors. “For example, we developed and were awarded a hybrid oil pan utilizing an aluminum cast upper pan technology with a steel stamped lower structure, incorporating our ShilohCore laminate technology. This solution leverages three different Shiloh processes and is another example of the differentiated solutions that we bring to market.”

Some of Shiloh’s proprietary solutions can be seen as “disruptive technology,” or new-to-market solutions such as Shiloh Core, BlankLight, ThinTech, laser welding aluminum and steel together, and squeeze casting.

At a casting plant in Clarksville, Tennessee, Shiloh is ramping up production of structural magnesium parts to supply BMW and Mercedes. These product developments are expected to “generate meaningful higher margins.”

“We are now at a point where we have resident engineers with our customers on site helping them design their product,” Hermiz added, a close partnership Shiloh was not even in a position to offer a mere two years ago.

Shiloh’s program contract wins are for “very diverse types of products not necessarily processes. When you are winning business for 2018, 2019 and quoting opportunities for 2020, [customers] are not quoting you on a process; they are buying a product and they want you to help them design a solution. We have made the investments to do that.”

Shiloh, claimed Hermiz, is one of the few companies that can bring a mixed material solution to the industry, not only through distributing materials but by distributing process technology. To date, that includes coil processing, casting and stamping, laser welding, machining and modular assembly. No doubt the company will develop more capabilities as fast as the market demands them.

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Thu, February 18, 2016