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Kentucky’s shiny aluminum scenario

By Robin Roenker

Logan Aluminum in Russellville employs approximately 1,000 Kentuckians, principally making sheet stock for roughly half of all aluminum cans in the United States. After a $190 million expansion, it will add 190 employees and produce heavier gauge aluminum sheet for the auto industry.
Logan Aluminum in Russellville employs approximately 1,000 Kentuckians, principally making sheet stock for roughly half of all aluminum cans in the United States. After a $190 million expansion, it will add 190 employees and produce heavier gauge aluminum sheet for the auto industry.

Logan Aluminum’s news in late October that its massive Russellville facility will join Kentucky’s growing ranks of automotive suppliers is the most recent in a series of facilities announcements further securing the commonwealth’s position among the world’s top aluminum production centers.

“Strong, lightweight materials are quickly becoming standard in vehicle production, and Logan Aluminum’s expanded operations contribute to Kentucky’s position as a global leader in the aluminum industry,” Gov. Steve Beshear said during the Oct. 28 facilities expansion announcement.

The facts are clear: Kentucky’s aluminum industry is booming. And it is growing from a position of strength. Kentucky ranks first nationally in aluminum production capacity, said Mandy Lambert, business development commissioner at the Cabinet for Economic Development. It leads the country in aluminum jobs and economic impact per capita, according to 2013 national Aluminum Association statistics.

Manufacturing and wholesaling operations of the aluminum industry in Kentucky are responsible for $3.8 billion annually in direct economic output, the Aluminum Association reports. When supplier and induced impacts are factored in, aluminum’s effect grows to $7.01 billion annually, accounting for 4.04 percent of the gross state product.

Kentucky currently has 151 aluminum-related facilities – from smelters and mills to manufacturers of end-user goods – that employ 18,201 direct employees, according to the Cabinet for Economic Development.

In 2014, there were 18 aluminum-related new or expanding facilities announcements in Kentucky, accounting for more than $577 million in investment and 650 new full-time jobs, said Jack Mazurak, communications director for the cabinet.

Notable among these: a $350 million investment to upgrade the Aleris aluminum coiled sheet manufacturing facility in Lewisport, which is currently underway in Hancock County; and a new $155.9 million, 242,000-s.f. aluminum sheet manufacturer on 50 acres of Bowling Green’s Kentucky Transpark that is projected to bring 80 jobs whose salaries average $65,000.

That new Bowling Green facility, Quiver Ventures LLC, represents a partnership between two aluminum companies: European-based Constellium and Japanese-based UACJ Corp.

Logan Aluminum has long produced rolled aluminum sheet for the can market, especially soft drinks. The $290 million investment Logan announced in late October will expand and upgrade that facility, add 190 jobs, increase capacity and allow it to produce heavier gauge materials, including auto and truck body sheet.

The prime driver reason for all this growth is the automotive industry’s increasing demand for aluminum body frame, which is lighter than steel.

Long-expected automaker shift happening

“We’re really at a special and interesting time for the industry nationally,” said Matt Meenan, director of public affairs for the Arlington, Va.-based Aluminum Association. “For a long period of time there’s been an expectation of being able to look to automakers to use more aluminum. And that’s something that has been ongoing for more than 40 years, sort of on a continual-growth basis.

“But what happened in the last 12 months, with the launch of the new Ford F-150 (pickup), which is really the first mass-market vehicle to go to an all-aluminum body, has been a huge inflection point for us,” Meenan said.

Nationally, in the last two and a half years, Aluminum Association member companies have committed $2.3 billion in domestic plant expansions to meet the demands of this new automotive opportunity, he said.

Aluminum bodies have been used for years in luxury cars – Audi, Jaguar, Land-Rover, Mercedes-Benz – because their low weight yields more energy-efficient vehicles. It’s estimated aluminum body structures can provide a weight savings of up to 50 percent compared to mild steel structure.

“For a long time, luxury cars had been using aluminum, and it’s really used (to some extent) in every car,” Meenan said. “But for the largest-selling vehicle in America to go to an aluminum frame and body is a big, big deal for us.”

The F-150 is just the first of what’s anticipated to be many mainstream models to adopt an aluminum body, in pursuit of greater fuel efficiency. Ford has indicated plans to convert its F-250s, F-350s and F-450s to aluminum body structure for 2017. The Kentucky Truck Plant in Louisville produces those models.

A recent North American Light Vehicle Content study by consulting firm Ducker Worldwide – known within the aluminum industry as the Ducker Report – projected an unprecedented 20-fold escalation in aluminum sheet demand from the automotive industry in the coming decade: from less than 200 million pounds (100,000 tons) in 2012 to nearly 4 billion pounds (2 million tons) by 2025.

Biggest change since the aluminum can

“This is a once-in-a-career type opportunity,” said Andy Ishmael, vice president of North American Automotive for Aleris, who oversees production in Lewisport. “The growth aluminum is going to have from automotive is the biggest change in the aluminum marketplace since (the development of) the aluminum can.”

Lewisport produces aluminum coils – think spools of rolled aluminum sheet weighing between four and 10 tons – that its customers further process into end products, including automotive body sheet, building construction materials, transportation systems and more, Ishmael said.

With the $350 million investment currently underway – which will add roughly 60 new jobs and 480 million pounds of capacity to produce automotive body sheeting in 2017 – the site will shift its primary focus to producing aluminum for the automotive sector, Ishmael said. In fact, when the facility upgrade is complete, Lewisport will become Aleris’s first North American site equipped to produce wide aluminum auto body sheet.

That kind of capital investment, Ishmael said, speaks volumes about the company’s faith in the future demand for its product – and for its staying power in Kentucky and in Hancock County specifically.

“We don’t make a $350 million investment like this without working with and having some real partnerships worked out with our customers. So this isn’t a ‘build it and they will come’ scenario. We have contracts to back this work and this investment we’re making. Otherwise we wouldn’t have jumped to such a large investment,” he said.

For Lewisport and Hancock County “an investment of this type is huge,” Ishmael added. “There is huge pride and emotion (there) about the future of that facility being set on such a growth platform, and the big investment that we’re making there.”

In addition to Aleris, Kentucky is home to several major aluminum facilities: Century Aluminum has plants in both Hawesville and in Sebree – where it operates one of the United States’s few remaining smelters of primary aluminum. Russellville’s Logan Aluminum, which already employs about 1,000 people, has been a worldwide leader in supplying the aluminum can market; it provides aluminum for 45 percent of the aluminum cans made in North America. And in Berea, Novelis’s aluminum recycling facility is one of the largest of its kind in the world.

With that infrastructure in place, and the benefits of the state’s strong automotive industry presence – Kentucky ranks third nationally in light vehicle production and second in light truck production – there’s no reason to think that commonwealth aluminum manufacturers won’t be primed to capitalize on the growing automotive market demand.

Industry likes cheap power, market access

“With much of the aluminum industry expansion being driven by the automotive industry,” Lambert said, “Kentucky’s proximity to key suppliers and auto manufacturers in the Midwest and South, along with many other industries and markets along the East Coast, will continue to be a key advantage for companies located here.”

While projected automotive demand acceleration for aluminum is big news in the industry right now, the factors behind aluminum’s popularity and utilization across so many sectors – from foil and cans to building materials, personal electronics, aircraft construction and even the Mars Rover – are the same as they’ve always been: It is lightweight, durable, corrosion resistant and infinitely recyclable.

In fact, today fully 70 percent of U.S. aluminum production utilizes recycled source material, said the Aluminum Association’s Meenan, up from just 30 percent 20 years ago.

The smelting process to produce primary aluminum from bauxite ore is somewhat expensive, as it demands an extremely high electricity load – 400 kA or above – to drive the electrolytic reduction step that breaks the aluminum-oxygen bond in alumina to yield pure liquid aluminum. With the cheapest electricity in the eastern United States, Kentucky’s logistics advantages are especially attractive for aluminum suppliers.

To keep production costs down – and reduce waste – many manufacturers today use recycled aluminum as their primary source material. Aleris’s Lewisport facility gets aluminum from the Real Alloy recycling facility in Morgantown, Ky., among others, and does some of its own recycling as well, said Ishmael.

Using recycled aluminum instead of producing new primary aluminum reduces manufacturing energy demand by 92 percent, according to the Aluminum Association. Thanks to aluminum’s unlimited recyclability, nearly 75 percent of the aluminum ever made globally is still in use today.

That makes aluminum the most environmentally friendly packaging option available today, said Randy Schumaker, president of Logan Aluminum, which is co-owned by Louisville-based Tri-Arrows Aluminum and Atlanta-based Noveli Inc. and ships can-sheet aluminum to every aluminum can manufacturer in North America. Logan has roughly half of the North American supply market share.

“We start with recycled beverage cans, sidings, lithographic sheet and so on,” said Schumaker. “And we basically reprocess that and make it into the rolled sheet stock.”

As source material, Logan uses ingots produced from recycled materials at the Novelis plant in Berea but also does some direct recycling of its own, he said.

“The most interesting fact is that once our product leaves our plant, it (goes to our customer and) gets made into a can. After it’s used, it gets recycled and it’s back at our door to be processed again in 60 days,” said Schumaker.

Metal production research too

Schumaker is also currently chairman of the board of Secat Inc., an independent, for-profit metallurgical research laboratory at the University of Kentucky that serves the aluminum industry.

Launched in 1999 by a consortium of 16 aluminum companies, Secat conducts research on aluminum product and process technologies for small to mid-sized companies without the resources for in-house research labs of their own, said Todd Boggess, Secat’s general manager.

“The decision to position the facility here came about since Kentucky is such a huge state in terms of aluminum manufacturing and production,” Boggess said. Secat leases space at UK’s Coldstream Research Park and works to optimize aluminum manufacturing and production techniques.

“Metallurgy is not a field with a lot of people; it’s a highly specialized skill set. So here we have 11 people, nine of which are metallurgists, and most of them have a PhD. We recruit really unique individuals, and they are hard to find,” Boggess said. “Whereas most plants 30 years ago might have had 10 or 15 metallurgists in each plant, some plants today have none. So they (our clients) really rely on the work we do here.”

Occasionally, Secat works on publicly funded projects, such as past grants from the Department of Defense and Department of Energy, in which their findings are openly disseminated. More often, though, companies contract with Secat for proprietary projects whose results are confidential.

“Aluminum is a highly competitive industry. So Company A is very strict about us not talking to Company B, and so forth,” Boggess said. “And even though we may be working with competitors, we go to great lengths to make sure that we password-protect everything, and everything is on a need-to-know basis so that there is very little likelihood of any information crossover.”

With the now-booming demand from automotive original equipment manufacturers, Secat has been at work in helping existing aluminum sheet manufacturers anticipate ways they might alter their production process to enter the growing new marketplace – as Logan Aluminum is preparing to do.

“So, maybe you have a company (like Logan) that has produced aluminum-can sheet for years, and all of a sudden they want to expand their product mix to include automotive-sheet alloy,” Boggess said. “There’s a lot of work that goes into converting your operations from being a can-sheet supplier to an automotive-sheet supplier.

“One is, your alloy is different, so you have to introduce new raw materials into your mix. Plus, you have to change your processing parameters. Maybe it takes you longer to produce a finished coil for automotive than it did for can sheet, and so on. These are the kind of factors that go into it.”

Still not enough capacity to meet demand

The advantage of working with Secat, Boggess said, is that manufacturers can perfect their optimization parameters using lab-scale equipment for small-batch test runs rather than experimenting with 30,000-pound coils of aluminum in their own production facilities.

“And on the other side, once they have finished the product, then there’s a process where they have to get their material qualified to be accepted by the OEMs,” Boggess said. “So we help clients do a lot of analytical testing on their material to make sure it meets the specifications that are required by the OEM.”

Boggess anticipates many existing Kentucky aluminum companies may opt to expand to include automotive sheet in their product mix in the coming years to meet the “staggering demand” expected.

“If you just look at what’s been announced by Ford, with the F-150, and other manufacturers, there’s a shortage of capacity. Even with the Aleris expansion in Lewisport and the joint venture in Bowling Green, those plants are still not enough capacity to meet the demand that is projected in 2025,” Boggess said.

As a native Kentuckian himself, Ishmael is pleased to see his home state in a position to reap the benefits of the aluminum boom ahead. “It’s huge for us. For our entire state. Aluminum is key to what we do today and how we’ll grow in the future,” he said. ν

Robin Roenker is a correspondent for The Lane Report. She can be reached at [email protected].