2006 forecast: No guarantees on aluminum prices, supplies

Without a catastrophic event, the U.S. commercial construction industry and its participants should see healthy returns in 2006, with overall market growth averaging 4-to-6 percent. At Kawneer North America in Norcross, Ga., company executives see an upbeat economic outlook and have been working with managers of its international parent, Alcoa Inc. of Pittsburgh, to make sure that supplies will be sufficient to meet North American demand. Kawneer supplies aluminum curtain walls, skylights and doors, and storefront systems for commercial construction. Details regarding the forecast follow.

Supplies. Billet supply should improve in 2006 due to increased capacity in the Middle East and South America, offsetting some shortages that occurred in 2005. At the same time, should demand spike up more than forecasters predict, North American aluminum manufacturers, who do not have access to billet through a parent company, might not be able to meet their customers’ orders as easily because they don’t have access to international sources of aluminum billet. 

Hurricane reconstruction will not place heavy demands on contractors who primarily focus on commercial buildings until late in 2006 and throughout 2007, because of the need to rebuild the Gulf region’s infrastructure first.

Prices. U.S. consumers of aluminum billet, curtain walls, storefronts, windows and skylight systems saw price hikes of 8-to-12 percent during 2005, mainly as a result of rising energy costs. As of late November, although Kawneer executives foresee energy prices moderating somewhat, pricing for aluminum billet has spiked over 6 cents per pound for December purchases. As a result, Kawneer executives will be monitoring billet prices closely and, if it appears that these increases will continue, will have to consider a price increase early in 2006. Meanwhile, aluminum manufacturers face price increases for health care, paint and other petroleum-based products that apply additional downward pressure on margins. To offset some of these rising costs, it will be important for company managers to improve operating efficiencies throughout their organizations.

Overseas competition. Aluminum manufacturers from China and other Asian countries have an increased presence in the United States and have begun warehousing standard stock products on both coasts. Their products create a downward pressure on prices at the low end of the supply chain where customers do not demand custom-tailored products or services.

Unitized and pre-assembled construction. The demand for highly engineered products at the other end of the value chain expands as contract glaziers and glass-shop owners seek even more services from aluminum manufacturers. In turn, they respond to the needs of North American architects planning and constructing more sophisticated facilities in congested urban areas. Kawneer salespeople see heightened demand for preassembled and pre-glazed products that improves quality and helps reduce overall installed costs.

As a result, Kawneer’s product-development team has focused on these products to meet these demands.  The systems also are ideal for the renovation market that represents a strong opportunity for suppliers and contractors. This market continues to be significant and has proven to be much less vulnerable to cyclicity, making it a solid choice for pursuing projects in both up and down cycles of the construction economy.