INTERVIEW: Infrastructure bill to augment megatrend-driven US aluminum demand: Hydro VP

The $1.2 trillion US infrastructure bill should significantly boost domestic aluminum consumption, already accelerating due to industrial megatrends such as lightweighting and electrification, according to Mike Stier, Norsk Hydro vice president-finance and strategy. President Joe Biden is set to sign the bill Nov. 15.

"In lightweighting, inclusive of the support of the infrastructure bill, pretty much anything that moves is going to be needing more aluminum," Stier said in an interview with S&P Global Platts.

For example, Stier said more commercial trailer units, which have a high aluminum content, will be needed to transport materials for infrastructure projects. The heavy-duty trucks that haul the trailers will also require more aluminum content to meet lightweighting and fuel economy initiatives, he added.

"There's a tremendous value with lightweighting, both as it relates to the ability to carry a load and how that then relates to fuel economy with sustainability coming into play," Stier said. "I think we've only seen the beginning of that trend."

President Joe Biden is set to sign the bill Nov. 15, according to a statement issued by the White House Nov. 10.

Electrification initiatives will also increase the manufacturing of aluminum-intensive products such as household electronics, lighting applications and heat exchange housings, he said.

A large segment of Hydro's North American operations serves the aluminum extrusion market. Stier said projections now point to the region's aluminum extrusion market exceeding 6 billion lb/year over the next few years, surpassing record shipments of about 5.51 billion lb in 2018.

'Interesting dynamic'

The US aluminum sector is poised for sustained growth with the anticipated infrastructure spending, but the domestic industry may need to tackle various challenges to keep pace with the subsequent demand surge amid already-tight market conditions.

"Coming through now on the heels of the COVID era, we're in this demand strong- supply chain disruption-staffing challenge [period]... that creates an interesting dynamic," Stier said. "Then you put this infrastructure bill on top of it, which maybe has a one-to-five-year lag [in demand response] depending on the specific market segment, and it's going to be interesting to see the stress that it puts on the market and the ability to support the demand. It's a good time to be in the market."

The aluminum industry may face disruptions involving staffing shortages and raw material supply as it expands to meet increasing demand from infrastructure spending and other industrial megatrends, he said.

"Equipment capacity is tight now, but I also understand there is some new capacity coming into market, though likely not enough in total," Stier said. "However, I think the bottleneck factors will be more on the people and the raw materials, so globally it's a challenge with materials and the supply chain allover."

Stier said US demand could still be fulfilled by imports if premiums in the region remain attractive after reaching record levels in 2021. "That's a big lever that exists in the market to help bias metal flow towards the US versus other countries," he said.

The Platts spot P1020 US Aluminum Transaction Premium, delivered Midwest, reached a record 35 cents/lb plus LME cash in mid-October. This compares with a monthly average of 12.11 cents/lb in October 2020, according to Platts data.

Infrastructure demand outlook

Stier said infrastructure projects implemented because of the recent legislation will likely not begin for at least two or three years, and larger road and rail projects could have longer lead times. A more immediate impact to aluminum demand should be driven by industrial sectors that will need to build up and prepare to support the infrastructure projects, he added.

"The quickest impact likely could be around anything supporting the buildup- the machinery and equipment," Stier said. "I would expect to see those areas climb on the front end either in the anticipation of or the actual ramp up to support more of an extraordinary spend that we would see with the infrastructure bill."