It is not so much technical progress that determines the respective benefits of steel or aluminium wheels; more important are the basic advantages each material affords. Weight is no longer a major factor and the benefits aluminium could provide in terms of design can be equalled by modern steel wheels. Furthermore, flow forming, the chief weapon used by the protagonists in the aluminium wheel camp, is becoming less effective in the battle against steel wheels.

And in the area of aesthetic advantage, which mould cast manufactured wheels have enjoyed for a long time, it was Hayes Lemmerz, a strong player in the field of aluminium wheels, that introduced the so-called “Steel Flex Wheel”, a third option for manufacturers of aluminium wheels to pursue. Since first being unveiled millions of these wheels have appeared on our streets, and while they only cost half as much as cast aluminium wheels, the various designs are visually the same. So if looks are less of a deciding factor when selecting a material these days, one criterion remains as important as ever – price.

This is an area in which the pendulum has repeatedly swung from one extreme to the other. Initially aluminium suppliers had cause for celebration as the large emerging Chinese market sparked a boom in steel prices and steel became a relatively scarce commodity. This caused Hayes Lemmerz endless problems, and the company is reportedly still trying to put the heavy burden of insolvency proceedings dating from that time behind it.

However about two years ago the pendulum swung the other way. While steel prices continued to rise, the rate of increase slowed, and those in the aluminium camp began to experience the same unpleasant phenomenon, and during this time they began to be shaken about by an automotive industry not overly shy when it came to asking their suppliers to lower prices in order to increase productivity. Demands from emerging markets such as China, India, Brazil and Russia also became a strong factor influencing skyrocketing aluminium prices. And aluminium wheel manufacturers encountered a third impediment along their path – disagreements with each other. Each pointed the finger at their competitors every time prices moved in the wrong direction, and no longer did anybody simply speak about maintaining viable price levels; the industry evolved – at first imperceptibly – into a struggle for survival. The aluminium wheel industry had, during better times, failed to have the farsightedness to see the benefits of friendly takeovers or mergers that would have brought about the consolidation necessary to weather these harder conditions. The writing on the wall was misinterpreted, or perhaps simply ignored.

Some aluminium wheel manufacturers disappeared while others considered too small to survive independently, such as France’s SRF and Germany’s Kronprinz, found refuge within larger organisations – in this instance the Borbet Group. Many once proud names in Europe’s aluminium wheel industry became but shadows of their former selves, and Dr. Elisabetta Abrami, from the bankrupted small firm MIM, even went as far as to declare “the Italian aluminium wheel industry is dead.” And watching the collapse from the sidelines are Asia’s many newcomers, ready for the crown to be passed onto them.

Price pressures are to blame

Again and again we hear the same old complaints of companies buckling under the pressure of spiralling prices that know only one direction – down. However the Italian aluminium wheel industry is not dead; Dr. Abrami’s arguments focused upon the victims of the recent industry upheaval, not the survivors. Momo still flies the flag for Italy and EtaBeta has no intention of disappearing. Hayes Lemmerz “only” retains its flagging Campiglione Fenile facility near Turin, but the jewel in the crown, Dello, has been preserved intact. So Dr. Abrami’s diagnosis of death has been premature; the Italian industry, while seriously injured, still holds out the hope of recovery.

The pendulum is now swinging back in the steel wheel manufacturer’s direction. The issue at hand this time is not so much China’s growing requirements, rather the swelling power held by commodity producers. Mining super heavyweight BHP Billiton desires to swallow up Rio Tinto, and there is no longer talk of an oligopoly in the iron ore industry; a duopoly seems instead to be the most likely scenario, with the $350 billion giant BHP Billiton and Brazil’s CVRD dominating the scene. Costs for the steel industry threaten to run rampant, and it is not difficult to guess whom buyers of iron ore will pass this pressure onto: Steel producers, forced into higher prices for iron ore, will in turn charge their automotive industry customers, including steel wheel manufacturers, a greater amount. Steel producers, who have found the number of separate avenues for purchasing their required raw materials dwindling, have ended up with their backs against the wall. Desperate attempts to merge followed, triggering a wave of consolidation, with prices charged to customers seeming more ever more extortionate – between 2002 and 2007 the price of iron ore roughly tripled.

But the aluminium wheel sector should not breathe easy – the events taking place in the steel industry can also occur again in the aluminium business; consolidation is also taking place here. A prime example is that of aluminium super heavyweight Alcoa. Its attempt to take over Alcan in May 2007 failed, so the company has looked towards a “plan B”. China’s state aluminium company and Alcoa have jointly acquired nine per cent of Rio Tinto (who purchased Alcan last year) through a vehicle called Shining Project, in which Alcoa has a five per cent stake. However, Alcoa has entered a contractual relationship with China that gives it the right to raise its holding in the vehicle to 25 per cent. This figure is significant, as it approximately equates to the proportion of aluminium assets in Rio Tinto after it acquired Alcan.

As far as aluminium production in Europe is concerned, the greatest threat to the industry may come from spiralling energy costs. About 40 per cent of all costs incurred during aluminium production here is accounted for by power; a medium sized facility consumes as much electricity as a city of several hundred thousand inhabitants. Thus for major producers location is becoming ever more important, and regions where electricity costs are minimal are naturally favoured. In the Gulf region, where today two of the largest aluminium smelters ever produced are located (Alba, in Bahrain, and Dubai), capacity is set to double within the space of a few years. A facility in Oman with an anticipated annual capacity of 350,000 tonnes in under construction, and in Qatar a project almost twice as large is planned. Further expansions of capacity are also no problem – one simply builds on the empty desert behind the existing plant.

The second location where capacity is mushrooming is – no surprises here – China. Between 1995 and 2007 capacity increased six-fold to almost 12 million tonnes per annum. About one third of global aluminium production (approximately 34 million tonnes in 2006, confirmed results for 2007 are not yet available) is already taking place in China! Global increase in demand for aluminium increases by about 10 per cent each year, and in China this figure is much higher.

And there is perhaps no better subject than China for our final word. In the wheel market, complaints against China are frequent and mainly revolve around the export subsidies that allow Chinese products to be sold globally at a price nobody can compete with. Through the efforts of the World Trade Organization it is hoped this problem will brought under control in the next few years, however this will most likely pour little cold water on that country’s booming aluminium wheel production. We await the pendulum’s next swing.