Aluminum engine blocks, wheels and body panels are not likely to be more expensive in the wake of a merger frenzy among aluminum suppliers in Europe and the United States, analysts say.
A spate of proposed mergers among aluminum producers announced in the past two weeks could concentrate up to one-fifth of worldwide aluminum production in two companies.
But fierce global competition among aluminum suppliers is likely to hold prices down.
'At the end of the day, these management teams are trying to drive up applications for aluminum,' said Anthony Rizzuto, senior managing director for Bear, Stearns in New York City. 'The only way they are going to do that is by reducing costs.'
The aluminum industry made headlines two weeks ago by announcing two big mergers. One brought together Alcan Aluminum Corp., France's Pechiney SA and Switzerland's Alusuisse Lonza Group AG. In the other, Alcoa Inc. announced plans to buy Reynolds Metals Co.
If approved by stockholders and regulators, the mergers will create two giants that control about 20 percent of worldwide aluminum production. That has raised concerns that the merged suppliers may try to boost aluminum prices from a two-year slump caused by overcapacity and weak demand in Asia and Europe.
Aluminum is traded as a commodity like gold and pork bellies. Last week, it was trading on the benchmark London Metal Exchange for 67 cents a pound, up from a recent low of 60 cents a pound but below its historic average of 70 cents a pound.
In contrast, steel can be purchased for 30 to 35 cents a pound.
Light vehicles are second only to containers and packaging in use of domestic aluminum. They accounted for 18 percent of U.S. shipments in 1997, according to the Aluminum Association.
Of the aluminum the car companies use, 77 percent is raw aluminum for die-cast components such as engine blocks, tranmission casings and wheels, according to Ducker Research Co., a market research firm in Bloomfield Hills, Mich. The rest is mainly sheet stock for structural stampings and fin stock for radiators and heater cores.
Richard Schultz, manager of aluminum projects for Ducker, thinks the mergers alone likely won't affect prices.
'Unless these companies decide to shut down capacity, they won't be able to raise prices,' he said.
General Motors, the largest North American aluminum user, has a long-term contract to buy aluminum from Alcan. The automaker 'has already bought most of its aluminum for the next three years,' Schultz said.
Nonetheless, a senior GM executive urged the aluminum industry to resist price increases. The automaker's decision to increase aluminum use is 'based on the expectations that aluminum will remain competitive with other materials,' said John Stiles, GM's executive director of worldwide metals purchasing.
Any efforts to boost aluminum's price also will be hamstrung by abundant supplies coming from foreign countries, said Bear, Stearn's Rizzuto. 'You still have the Russians and Chinese producing a lot of metal, and that's not going to change.'
James Kelleher, senior analyst for Argus Research in New York City, agreed.
'This is a global business, a commodity business, so you shouldn't look at market share.' he said. 'There will always be global rivals to step in and provide good pricing on products.'