What’s Ahead in the Commodity Markets for Fleet?

Economic, political and industrial forces are impacting the price and availability of commodities key to the fleet industry, namely, steel, aluminum, copper and nickel.

To examine current trends in fleet-relevant commodity markets, Automotive Fleet Editor Mike Antich recently spoke with Mike Butsch, vice president of Global Business Development for Primrose Alloys and a subject matter-expert on commodities issues.

AF: What is the broad overview of commodity availability and pricing specific to the types of commodities used in the fleet industry?

Butsch: Great question. The broader overview is that currently, at least on the softer alloy side of aluminum, everything's going pretty well. There's been a pretty significant ramp-up in folks who do the extrusions and take care of that segment of the business.

At the end of the day however, demand has softened because there's still component challenges within the automotive and medium- and heavy-truck market that has suppressed demand.

Right now, we have a slight bit of relief on aluminum pricing and steel pricing as it relates to automotive.

We did see a high last year on steel of about $1,900 a ton. It slid down to about $700 or $800 a ton, and currently it's sitting around $1,100 to $1,200 per ton.

We're seeing some creep up on steel, aluminum and soft alloy. In particular, the 6000 series alloy is fine, but we've seen over the past six months, a pretty strong influx of orders from Boeing and Airbus.

Demand for the 7000 and 2000 alloy, the hard alloy material, is elevated. Supply time is extended, and many of the extruders of that harder material are booked out for the balance of the year.

One thing to remember is aluminum originates with all the same kind of raw materials. It's just what you add to get the alloy and hardness that you're looking for.

AF: These spot shortages occurring on the automotive side — is that primarily due to a shortage of materials or other factors?

Butsch: I think you look at the power side of the piece. So, the power unit, obviously light vehicles — F-250 pickups and smaller or passenger vehicles — has a much more broader use for the retail customer. Those demands are being filled quite well. The medium- and heavy-truck market is still pretty much maxxed out.

Most of the people with whom we work are telling us there's around a 30%-35% of supply level from pre-pandemic time.

I think it's complex. There are people issues: most of the people that feed that supply chain are struggling on a personnel standpoint. As a result, you're seeing some lumpiness in some components, and therefore truck manufacturers and the medium and heavy guys are still struggling to get everything they need pulled together to make and finish a product.

AF: What is your forecast on aluminum pricing going forward?

Butsch: I think the soft alloy is going to remain pretty static through, probably, the end of this year. I think if automotive actually gets back into it, and we have the influx of some heavy activity as well, that'll tighten. But I think there's enough capacity in the market that we shouldn't see a lot of movement in material.

But on the hard alloy side or some of the specialty pieces, I think you're going to be looking at longer lead times.

One thing we didn't talk about on the steel side is the moderation in nickel cost, which is a principal part of stainless. Many of our stainless suppliers are 50 to 80 weeks out for stainless steel. Stainless steel is used in the auto and the truck market, so folks need to keep that in mind.

AF: Just being speculative now, everybody seems to believe that, ultimately, we will enter a recessionary environment. The question is how severe that recessionary environment will be. What kind of impact does a potential recession have on commodity prices?

Butsch: I think you'll see a lessening of capacity to produce. The people who make the metal are having to look at that as well and say, “Hey, I need to get ahead of that downturn. I don't want to be holding inventory.”

And again, with the lumpiness that we've seen, the ups and downs in the supply market, my guess is as we get to the bottom of reserve and supply, prices will increase and probably increase sharply at that point where they converge.

Longer term, I think we're okay. But let's say the automakers and the truck makers get caught up on their subcomponent piece, and they have a 10% or 15% improvement in capacity over the next 12 months. I think we're going to see a tightness in all metals, and therefore prices will start to rise as well.

The thing to remember is Ukraine and Russia are principal producers of aluminum and steel. We also have the situation where there's tariffs on the Chinese imported material so there's less available in the market. Once manufacturing tries to catch up, we'll see a tightening of availability, a lengthening of available times where it's out in the future and then an increase in price.

AF: One thing happening in the automotive side has been the increase in EV sales. Now, admittedly, in terms of overall sales, it's still a relatively small segment, but nonetheless it is growing. What kind of impact are EV sales having on certain commodities, in particular, copper prices?

Butsch: Copper softened up because there's a little reduction in demand. But again, keep in mind the number of forecasts out there for Europe and the U.S. to fully engage the EV market. Forecasts suggest somewhere between two times to three times the current global supply must be available to get to that point, between infrastructure and actually the amounts required for EVs.

We’re in a very odd, uncertain period. The markets, from a metal cost standpoint, are slightly depressed, but that can change very quickly as we've seen in the past. In copper, longer term, there's really not enough copper available in today's market to meet the need for true globalization of the EV system vehicles.

AF: You mentioned the war in Ukraine. We hit a milestone recently: it's entering its second year. What impacts from the war do you foresee occurring with commodity prices? You touched upon aluminum and steel.

Butsch: One of the things to keep in mind is that the United States and a number of the other NATO countries have been providing material support to Ukraine in the way of munitions and things. We're seeing a dramatic ramp-up for us to catch up on, for example, here in the U.S., missiles, tank rounds and ammunition.

If you think of brass and copper for munitions along with aluminum and stainless for the missiles, we've used approximately 10- to 12-years’ worth of our munitions stockpiles based on some experts’ forecasting of consumption. That means the military complex feeding the munitions part must ramp up, and that typically takes some eight to nine months.

I think we'll see an impact from that probably the first of the year.

AF: So upward pressure on prices?

Butsch: Yes.

AF: What is your overall forecast for the balance of the year and going into calendar year 2024?

Butsch: As we continue to see improvement in onshoring here in the United States, and it's happened very rapidly, we'll see increased demand for U.S.-produced product or North American-produced product.

Europe will not be capable, necessarily, of supplying as they have in the past. We've already essentially lost China due to the tariffs and things. They were number one in aluminum and steel. Russia, I believe, is in the top three for aluminum and the top five for steel. We've got a greatly reduced supply globally.

So again, as the focus comes back to the United States; next year can be challenging. I don't have a crystal ball, but based on the demand, I would expect that we would see a decrease in availability and therefore an increase in cost.