Chicago, IL – December 29, 2015 – Today, Zacks Equity Research discusses the Industrial Metals (Part 2), including Alcoa Inc. (AA), Ford Motor Co. (F), General Motors Company (GM), Boeing Company ( BA) and Lockheed Martin Corporation ( LMT ). Industry: Industrial Metals (Part 2) Link: https://www.zacks.com/commentary/65994/why-you-shouldn39t-give-up-on-industrial-metals Industrial metals are the building blocks of an economy. Remember, Alcoa Inc. ( AA) symbolically kick-starts the earnings season every quarter. At present, even though concerns over China’s future growth have added an element of uncertainly to the outlook, there are plenty of reasons to be optimistic about the industrial metals industry over the long term.
Here we discuss some of the key reasons and what investors in the industrial metals sector can look forward to in the coming months and years:
Strong Demand in Automotive & Aerospace
On the demand side, aluminum consumption is expected to improve on a global basis, spurred by the automotive and packaging industries, the key end-markets. The automobile market is becoming increasingly aluminum-intensive, given the metal's recyclability and light-weight properties. Automakers consumed a record amount of aluminum last year as plummeting prices and technological breakthroughs made it a viable alternative to steel.
The global push to improve fuel efficiency in vehicles is expected to more than double the demand for aluminum in the auto industry by 2025. In line with this, Alcoa has completed an expansion at its Tennessee facility dedicated to supplying aluminum sheet to automakers like Ford Motor Co. ( F), General Motors Company ( GM) and Fiat Chrysler Automobiles N.V. .
The airline industry is also expected to boost demand for the metal. Alcoa recently clinched two multi-year supply contracts with The Boeing Company ( BA) worth more than $2.5 billion. Under one contract, which is Alcoa's largest fastener deal ever, the company will supply multi-material fastening systems for every Boeing platform including 777X and 787 Dreamliner.
Under the second deal, Alcoa will supply ready-to-install titanium seat track assemblies for the entire 787 Dreamliner family of airplanes. The agreements build on Alcoa's 2014 aluminum sheet and plate deal with Boeing worth more than $1 billion. With that landmark deal, Alcoa became Boeing’s sole supplier of wing skins on all of its metallic structure airplanes.
Alcoa also has big aerospace deals with Airbus and Lockheed Martin Corporation ( LMT ), both inked in Oct 2015. Alcoa cut a $1 billion deal with the French aircraft manufacturer Airbus to supply titanium, steel and nickel-based superalloy aerospace fastening systems. Alcoa also won a contract worth roughly $1.1 billion to supply titanium for Lockheed Martin’s F-35 Joint Strike Fighter (“JSF”) program. The contract makes Alcoa the titanium supplier for airframe structures for all three variants of the F-35 from 2016 through 2024.
To capitalize on the lucrative aerospace market, Alcoa acquired RTI International, which broadened its titanium offerings and added advanced technologies and materials to its portfolio. Moreover, the buyout of U.K.-based leading jet engine components maker Firth Rixson has placed Alcoa to capture additional growth in the growing aerospace market through a broad spectrum of high-growth, value-add jet engine components.
In addition, the acquisition of Germany-based leading provider of titanium and aluminum structural castings – Tital – has strengthened Alcoa’s position to leverage strong growth in the commercial aerospace sector and capture rising demand for advanced jet engine components made of titanium.
Following China, which accounts for over 40% of the global aluminum consumption, India holds promise given its current low level of aluminum consumption and high urban population growth. With demand being strong and the industry pulling the reins on supply, the aluminum market is likely to witness supply deficits for a prolonged period, thereby creating a supportive backdrop for high aluminum prices.
Pickup in Economic Activity to Drive Copper Demand
Copper is a major industrial metal playing a particularly important role in emerging countries. Given its varied applications, the trends in the copper market are often considered useful indicators of the state of the global economy.
Developments in the world economy are strongly correlated with movements in copper prices. Trends in Chinese GDP growth and world trade play a major role. Given that China accounts for the largest share of global copper consumption (around 46%) by far, and also has a large share in the total production of pure copper (around 34%), correlation of the metal with China is a key factor.
The near-term outlook for China has been an overriding concern for the global markets and the situation isn’t expected to stabilize in the near term. But in the long run, expectations of a rising middle class in Asia, particularly in India and China, who will spend more on consumer goods such as air conditioners and refrigerators in the years to come, will spur demand for copper. Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today. Find out What is happening in the stock market today on zacks.com. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report ALCOA INC (AA): Free Stock Analysis Report FORD MOTOR CO (F): Free Stock Analysis Report GENERAL MOTORS (GM): Free Stock Analysis Report BOEING CO (BA): Free Stock Analysis Report LOCKHEED MARTIN (LMT): Free Stock Analysis Report To read this article on Zacks.com click here.
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