Aluminum giant Alcoa Inc (NYSE:AA) has wrapped up a $300 million expansion at its Davenport, Iowa plant that supplies aluminum sheet products to the automotive industry. The company has secured long-term supply agreements for the project.
The Iowa expansion created 150 jobs during its construction phase and will also create additional 150 full-time jobs. The expansion is the first of three capacity expansion projects that are underway to meet rising demand for aluminum intensive vehicles.
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Alcoa is also adding automotive capacity in Tennessee, which is slated to complete by the middle of next year. Moreover, the company is building a rolling mill (expected to complete by end-2014) at its greenfield joint venture project in Saudi Arabia with capacity to produce aluminum automotive sheets. Alcoa is spending roughly $670 million on these expansions.
As per automotive original equipment manufacturers (OEMs), the use of aluminum in cars is expected to nearly double by 2025 as automakers seek more fuel efficiency by reducing vehicle mass. Moreover, the amount of aluminum body sheet content in vehicles is expected to quadruple by 2015 and rise ten-fold by 2025 from 2012 levels in North America.
Aluminum currently represents the second largest-volume component material in automotive vehicles. Many OEMs are expanding aluminum use from heat exchangers, wheels, drive shafts, engine blocks, hoods and deck lids to develop aluminum intensive vehicles by converting the body in white, or body structure, to aluminum.
Automotive has been one of Alcoa’s strongest markets. The automotive industry is showing strength with U.S. auto sales increasing 8% year over year to 15.6 million units last year. Alcoa sees significant growth of aluminum use in the auto sector this year as automakers increasingly look for the metal as a cost-effective mean to boost performance, safety, durability and fuel efficiency of their vehicles.
Alcoa is a Zacks Rank #3 (Hold) stock.
Other companies in the mining industry worth considering include General Moly, Inc. (GMO), Atlatsa Resources Corp. (ATL) and Tahoe Resources Inc. (TAHO). While General Moly holds a Zacks Rank #1 (Strong Buy), both Atlatsa Resources and Tahoe Resources retain a Zacks Rank #2 (Buy).