Suppliers are paying more, waiting longer for aluminum and other materials

By Dan Catchpole

 danieljcatchpole(at)gmail(dot)com

An infographic highlights the role of aluminum in commercial aircraft production. (Image via Google Images)

Oct. 3, 2018, © Leeham News: United States-based aerospace suppliers say lead times and prices have significantly increased for aluminum, steel and other high-grade materials used to make commercial and military aircraft. But, they say, they have taken the increases in stride.

Aerospace suppliers based outside the U.S. generally have been less affected by the increases in lead times and prices for high-grade aluminum and steel, which President Donald Trump slapped tariffs on in March.

Domestic steel, imported aluminum

The Trump administration imposed a 10% tariff on imported raw aluminum and 25% on foreign steel. U.S. mills still make about two-thirds of steel used in domestic manufacturing, but about 85% of raw aluminum used by American producers is imported.

Domestic aluminum mills have not been able to ramp up fast enough. According to U.S. Customs and Border Protection data, through Sept. 19, companies have paid $625.4 million in aluminum tariffs, Bloomberg reported.

At the same time, demand for aerospace-grade aluminum is increasing due to OEMs’ production increases. The tariffs, demand growth and supply constriction are driving up aluminum prices closer to 20% to 30% since the beginning of the year, according to employees at several aerospace suppliers and metal distributors.

Increasing lead times

Since the beginning of the year, lead times have increased by more than a week for basic aluminum products to an additional two weeks or more for higher-grade products. The lead time for aerospace-grade plate aluminum is up by as much as six weeks for some suppliers compared with two years ago.

Big buyers, such as Boeing, have been less affected by price swings. They already are able to negotiate for lower prices given their huge demand. Also, they are able to hedge with longer-term contracts and other measures not available to many mid-level suppliers. Many of the smallest suppliers have been less affected as well, as the OEM will often provide the raw material as part of a contract.

“They just drop off the aluminum plates, and we do the work,” said a plant manager at an Everett-area supplier. He spoke on condition that he not be named given, as doing so could cost him his job.

Mid-size suppliers who source their own aluminum are most vulnerable to the price and lead time increases.

Bottom of the supply chain

As John Byrne, former VP of Boeing supply chain management, told LNC in an interview, problems with raw materials and metals can create problems in the “bottom of the supply chain,” which can lead to production schedule changes.

Supply issues have contributed to the backup of 737s at Boeing’s Renton plant and elsewhere. However, these do not appear to be related to physical shortages of raw materials.

When asked about concern for raw materials shortages, Boeing spokeswoman Paula Horton told me in August, “As a general matter, we continuously keep a close eye on our supply chain. While we have had to mitigate risks in our supply chain, we are able to do that in a way where we continue to meet our customer delivery requirements.”

Boeing Commercial Airplanes declined to comment on what risks it has mitigated or how it has done so.

Even prior to Trump’s tariffs, the aerospace giant relied almost entirely on domestic aluminum, according to several analysts.

Aluminum prices and lead times outside the U.S. have gone up due to market demand, but the increases are considerably less than in the U.S. So, whatever the effects, they have been smaller for Airbus.

A U.S.-based Airbus spokesman was unable to get a comment from Toulouse in time for this article.

17 Comments on “Suppliers are paying more, waiting longer for aluminum and other materials

  1. I don’t understand what the author of the article is trying to convey here…
    “Many of the smallest suppliers have been less affected as well, as the OEM will often provide the raw material as part of a contract.

    “They just drop off the aluminum plates, and we do the work,” said a plant manager at an Everett-area supplier. He spoke on condition that he not be named given, as doing so could cost him his job.”

  2. What it means is that a very large buyer, Boeing, can use it’s vast buying muscle to get first shout for tariff-free domestically produced aluminium, and also supply its own component suppliers with the metal. Thus Boeing’s entire industrial ecosystem is protected from the tariffs.

    Everyone else who wants it is either scrabbling to get the scraps of domestic aluminium that are left over after Boeing has had it’s fill, or are paying tariffs on imported metal. So whilst the price of an airliner hasn’t gone up, the price of a frying pan may have.

    • The aerospace industry generally is paying more and waiting longer for aluminum.

      Boeing’s size gives it some protection from the price swings and order delays. Many small suppliers are also protected because Boeing or Airbus provides the raw materials for a work contract.

      However, many aerospace suppliers source their own materials. They are more vulnerable to prove swings and longer lead times.

      I don’t know exactly what percent of the supply chain. But it is not insignificant.

    • Doesn’t everyone pay the tariff price? That’s the whole point of the tariff, to raise prices, so that domestic producers will not be at a competitive disadvantage.

      • Not really. I understand its a % of the landed price, say 25%. So in some instances the imported item plus tariff could still be cheaper , specifically if the importer wears the extra cost. Then again if you are big user and commit to a longer contract your price will be lower than others.
        Looking at the way Al is made , the raw product bauxite is entirely from overseas anyway as the small amount of local product is used in fracking amoung other uses.

        • Don’t know what the main source of power generation in the US are but producing Al requires high energy input.

          • Electricity in the U.S. is produced from several sources. Natural gas has supplanted coal as the biggest generation resource. After coal come nuclear, hydro, wind and solar. Energy efficiency and lower production costs have kept electricity prices down in general in the U.S. Some areas, however, remain more expensive relative to others. For example, the Northwest continues to have extremely cheap electricity (so much so that lower utility costs have helped offset lower foreign labor costs in some cases), especially relative to the Northeast.

            Furthermore, industrial electricity rates are considerably less than residential rates, and big industrial customers, such as an aluminum smelting plant, can negotiate specific terms with a utility with even lower rates.

          • Thanks Dan, just noticed that oil prices heading seriously North. Not good for airlines and pax,

            I am not one for politics but developments around Al and oil not favoring the US at the moment.

        • Yes, that is my understanding as well. Sorry that I didn’t clarify that in the article.

          Interestingly, I’ve heard that the amount of scrap aluminum imports to the U.S. are rising. As I understand it (but have not had time to verify), scrap aluminum is not affected by the tariff, but it can be used as a substitute for raw aluminum. I don’t know if there are additional costs for substituting scrap, especially in production of high-grade aluminum needed in aerospace.

          Is anyone familiar with this trend? Please comment if you are.

          • To my knowledge, it is forbidden to use any scrap aluminium for making high-grade Aerospace Alloys.

      • Depends on how you bought your Al.
        ex works : you pay the tariff.
        DDP : … and no tariff change provisions in the contract : …

  3. I was in the engineering trade for many years. Tariffs, by their very nature end up raising the ‘home price’ of goods. US based Aluminum and steel providers have a new ‘international’ price yo match. Despite brave words there WILL be price creep.

  4. Unless there is a tariff on finished products with a high aluminium content all frying pans are likely to be imported.So why should the price increase?

  5. US aluminum producers will make bigger profits and might augment production somewhat (and consumes more electricity). But not much jobs creation here.

    On the other hand, US manufacturers that uses aluminum (or steel) will see their costs increase, and will become less competitive (like against Chinese imports).

    Overall, there’ll be more jobs lost in manufacturing than those gained in the primary aluminum production.

    Is this only me, or this 10% duty on aluminum imports (particularly from Canada) is pretty stupid?

    • Slightly of topic but the US imported ~46% of their U-235 from Russia in 2017, maybe put import duties on that?

  6. Just to add, 91% of imports of un-enriched Uranium came from Canada in 2017.

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