by William Pentland 06.03.08, 2:05 PM ET
Since gold, grain and oil prices soared to previously unfathomable heights, everyone wants to know what's next. The answer may be aluminum.
Last Friday, the U.S. Environmental Protection Agency (EPA) amended an obscure clean water regulation that restricted use of aluminum in automobiles because of a potentially harmful byproduct created in the manufacturing process.
Car makers treat aluminum to increase protection from corrosion in multiple ways, but the cheapest is an adhesive bonding process that uses zinc phosphate. Since the early 1980s, the EPA has included waste created from zinc phosphate processing on its list of FO19 hazardous wastes, which requires expensive additional treatment. The process apparently creates high concentrations of potentially harmful water contaminants.
The restriction drove up the cost of aluminum car components by forcing car makers to implement expensive clean-up systems. As a result, last week's amendment will substantially reduce the cost of aluminum-based car components, which will likely accelerate the industry's plans to replace vast amounts of steel currently used in cars with aluminum.
Although the EPA began its formal review of the aluminum restriction in 2006, the agency's decision appeared earlier than expected, which industry insiders imagined would not appear until later this year or early next year. The timing could reflect the Bush administration's desire that all major regulatory changes be initiated by June 1 to make sure they are finalized before the next president takes office, as reported May 31 by The New York Times.
Despite an industry-wide consensus that aluminum prices would fall in 2008, the opposite has happened. Prices have climbed nearly 25% since January. Since April, banks, including Goldman Sachs (nyse: GS - news - people ), UBS (nyse: UBS - news - people ), Lehman Brothers (nyse: LEH - news - people ) and Citigroup (nyse: C - news - people ), have raised forecasts for aluminum. Alcoa's (nyse: AA - news - people ) stock price has also soared.
Several industry analysts have revised their forecasts for aluminum prices in recent months. On Friday, aluminum prices in the futures market exploded.
Congress' recent decision to raise fuel efficiency requirements has intensified the auto industry's interest in lightweight materials. Aluminum could reduce the weight of cars dramatically because it weighs roughly half as much as steel. Every 10% reduction in car weight results in a 6% to 8% decrease in gasoline consumption.
Although advanced materials like carbon fiber weigh less than aluminum and are several times stronger than steel, they would require substantial upgrades of extant manufacturing facilities to implement. However, aluminum is compatible with current large-volume manufacturing facilities and body shops that would be expensive to overhaul.
"If you can stamp it, you want to stick with steel or aluminum," Mark Verbrugge, director of General Motors' Materials and Processes Lab, told Design News magazine earlier this year. "If you want to accentuate styling, composites are a better bet. But for the mainstream, composites are having a tough time competing with existing technologies."
The aluminum industry has presented the agency's decision in terms of environmental benefits that it claims will accrue from the de-listing.
"Every pound of aluminum used in a car reduces CO2 emissions by 20 pounds over 100,000 miles," the aluminum industry claims in a lobbying document. "Fifteen million aluminum intensive vehicles containing 250 pounds of aluminum would: save 3.5 billion gallons of gasoline [and] reduce CO2 emissions by 37.5 million tons."
Yet any cuts in carbon emissions might be outweighed by the negative affect aluminum could have on water supplies. And from the looks of things, car makers have already begun using aluminum--extensively.
The 2008 Ford Focus will use high-strength aluminum to replace steel in front-brake calipers. The new aluminum brakes will weigh 7.5 pounds less than their steel predecessor. In addition, two-thirds of the new Ford Focus fleet will have aluminum wheels, which will weigh 22 pounds less than previous models.
Since 1997, the EPA has granted a dozen exemptions to the rule for specific auto manufacturing facilities across the U.S., which has considerably increased the use of aluminum in the automobile industry. Last week's decision could trump those increases by an order of magnitude.
Ford has developed a prototype vehicle--the P2000--that replaces steel and cast iron in several key components as part of an effort to reduce the weight of a vehicle by 40%, which would create dramatic fuel efficiencies. Ford's prototype will increase the aluminum content by 256% over previous models, according to a report conducted by Oak Ridge National Laboratory's Center for Transportation Analysis. Other car makers have also developed aluminum-based prototypes.
A separate study conducted by the Center for Transportation Analysis in 2001 evaluated the environmental impact likely to result from the increased use of aluminum in automobiles. The analysis did not address water contamination, which at the time would have been avoided, since the EPA rule remained in force. Instead, the study expressed a primary concern with aluminum's environmental impact during its extraction process: "The largest single contributor to the total waste of [light weight materials being considered for cars] is aluminum, the extraction of which produces large volumes of mineral waste."
The study also noted that while the increase in aluminum use would have the most severe affects in Washington, New York, Oregon, West Virginia and Ohio, "Every region in the United States could potentially experience some change in environmental impact with the introduction of new automotive materials."
Source: Forbes.com
