The secret to Constellium's success? Billions of beer cans

MUSCLE SHOALS, Ala. — Billions of used beer and soft drink cans are the magic ingredient in Dutch aluminum supplier Constellium's strategy for getting more aluminum into North America's vehicles.

Billions of them.

As in 20 billion squashed cans a year.

Never mind who is out there drinking that many beers and soft drinks every year. It's part of a supply chain equation that Constellium has worked out to raise its share of the U.S. market for automotive aluminum.

That's a market well worth pursuing.

In 2010, the North American demand for flat-rolled automotive aluminum was about 100,000 tons a year. By 2025, annual demand will be 1.4 million tons, Constellium forecasts. According to a widely cited market research study published two years ago by Ducker Worldwide, the use of aluminum will grow by 168 pounds per vehicle, to an average of 565 pounds, between 2015 and 2028.

Automakers want lighter cars and trucks. Aluminum is a clear way to achieve that, as Ford Motor Co. did in 2014 when it remade its F-150 pickup with an aluminum body, dropping 700 pounds and signaling to the industry that a new era had arrived.

But incorporating more aluminum means suppliers have to make more automotive- grade aluminum in North America. That means creating more aluminum-sheet production capacity by gambling large investments on plants and machinery in the face of volatile metals tariffs. And until suppliers step forward to do that, it remains a veritable chicken-and-egg issue for automakers rethinking their vehicles with more aluminum.

"There's no doubt the demand is out there," said Chris Smith, president of Constellium Bowling Green, the company's U.S. automotive business unit.

"It's the biggest growth opportunity for aluminum today," Smith said. "Thirty-five years ago, you went from a steel beer can to an aluminum beer can. Now, you're doing that with vehicles. We're involved with something that's changing the face of the aluminum industry and the auto industry at the same time."

The question for Constellium, a mostly European supplier that sold $6.37 billion worth of aluminum of all kinds around the world last year, was how to get here.

The company has known for years that it needed a presence in North America. It watched helplessly from Amsterdam this decade as its two primary American competitors walked away with one of the industry's biggest prizes: contracts to supply the F-150. The F series is the top-selling vehicle line in North America. Alcoa and Novelis had U.S. volume capacity available for Ford's conversion. Constellium did not.

Constellium weighed the decision of how to invest here to compete here. It already had some investment on the ground — including a joint venture plant in Bowling Green, Ky., with Japanese company UACJ Corp., itself a joint venture between Japanese suppliers Furukawa-Sky Aluminum Corp. and Sumitomo Light Metal Industries. That plant was selling finished aluminum to automakers, supplied in part by coils imported from a Constellium mill in France.

But Constellium was ready to get serious.

Step one was to get beyond French imports; Constellium needed a U.S. mill that could produce mass quantities of aluminum.

One option was to commit perhaps $2 billion to build a plant of enough capacity to be a credible U.S. competitor. Investing at that level, essentially on spec, in hopes of selling the capacity to automaker customers would have been risky. Even more daunting, building on undeveloped land would have required a timeline of up to eight years, including site selection, planning, construction, hiring, training and tooling, the company estimated. Constellium didn't want to wait that long and risk missing out on other key vehicle projects.

Instead, planners hit on the idea of entering the U.S. through something of a sideways move — and it involved beer cans.

Here in Muscle Shoals, on the southern banks of the Tennessee River and a short drive from a Tennessee Valley Authority hydroelectric dam, an old plant had been turning out aluminum products since opening as a World War II defense contractor in 1941. Ownership and product lines have changed a few times in the last 70 years. Most recently, the plant was owned by Wise Alloys of Baltimore and relied primarily on a single product line. Wise had a rich contract to supply the aluminum sheets for cans to keep Anheuser-Busch's breweries flowing.

The plant's employment had fallen over the decades, from nearly 6,000 in the 1970s to about 900 when Constellium arrived at the door in 2015. One of the plant's main lines was down to a single shift, working eight hours a day, five days a week.

Beer can aluminum is not the same as automotive sheets. But the Dutch company paid Wise $1.3 billion for the plant, with plans to modernize it, expand its capacity and strategically lead it in two directions — entering the U.S. auto market while also going after more beer can business.

Since then, Constellium has invested in new equipment for the mills at Muscle Shoals. Some of it enables the rolling mills to move faster to turn out more coils every day. The company modernized the plant's emissions technology and received EPA approval to increase output. Investment also was required for the furnaces that melt the raw car-chassis-sized ingots, weighing up to 40,000 pounds each, that feed the plant.

Automotive-grade metal production requires a higher level of automation and quality control. Electronic controls were introduced throughout the auto side of the operation. Quality inspectors carefully examine the surface conditions of the coils that come off the mills, said John Evans, a New Zealander who serves as Constellium's director of automotive industrialization at the Alabama site. Constellium now has the operation running 24 hours a day, seven days a week.

Thomas Leary, vice president of industry forecasting consulting firm Harbor Aluminum, said capacity investment such as Constellium's in Muscle Shoals is going to be necessary to reach the projected demand for North American automotive sheet in a few years.

"Aluminum companies have tended to be risk-averse in the past," Leary said. "And 10 years ago, it was a tougher business. Some of these companies were getting ground down by customers.

"But the situation is changing," he said. "Now that automakers are moving toward more aluminum, it's a more promising environment for investment."

In some cases, the Muscle Shoals plant was a snapshot of many old industrial plants around America today — run down and not rigorously maintained, even as customers yearn for supplier capacity.

"The previous owner would run to failure. You'd just keep going until something broke," said Evans, speaking with Automotive News in the supplier's sunny, renovated offices in Muscle Shoals. "We're doing preventative maintenance here now to make sure we don't have catastrophic failures. That's how you grow the facility and produce more aluminum."

Inside the plant, technicians keep watchful eyes on the numbers flashing across new monitors that report the second-by-second condition of the wide, millimeters-thin sheets that roll through production. Elsewhere, quality inspectors gently rub their gloved hands over the surface of the produced metals, looking closely for blemishes or other flaws.

Once the coils are ready to ship, they are put on trucks bound not for automotive customers, but for the Bowling Green finishing plant. There, an additional production stage hardens the metal so it is strong enough for vehicle applications.

Constellium's U.S. strategy required one more investment. In January, the company paid $100 million to buy out its Japanese partners in Kentucky and take full ownership of the Bowling Green operation. More investment is under consideration for that operation.

Bowling Green is Constellium's supply point for U.S. automakers. Once the coils are hardened and ready to ship, that plant sells the Alabama-made aluminum to a growing list of customers, including Toyota, BMW, Fiat Chrysler, Nissan, Tesla and Ford. Although Constellium missed out on the big F-150 conversion, it is supplying the new Ford Ranger and Explorer, said Craig Lewis, Constellium director of strategy.

Lewis says more customers are in the pipeline, but he keeps his sales list confidential.

Back to the beer cans.

Lewis explains that the beverage sheet business is what made Constellium's automotive investment feasible.

By buying an existing plant, even one not yet in the automotive market, Constellium benefited from inheriting existing rolling mills, an established supply chain, a trained work force and, best of all, a reliable revenue stream. As it develops the automotive market, Constellium can enjoy the luxury of having the beer can business pay its way.

Keeping that business running requires an ocean of old cans.

The great American environmental recycling effort of recent years has paid off for the Dutch company, as trucks now deliver massive, multicolored cubes of crushed cans from around the country. The cubes are offloaded and dropped into the plant's open furnaces, where they melt into cauldrons of liquid metal that is poured into the production equipment that turns out rivers of pristine aluminum sheets to be made into new cans.

Constellium also invested in its recycling capacity to enable the plant to bring in still more cans and turn out still more can sheets. The volume translates to more than 1.6 billion cans a month arriving at Muscle Shoals. The company estimates that it now receives one-fifth of all the old cans in the U.S.

Or, at least a fifth of those that went into recycling bins.

From old can to new can, from beer can to automotive parts, Constellium is bridging the U.S. industry's transition from traditional steel composition to aluminum content. But what the company is really after is a U.S. supply footprint.

"That's the objective," Smith said. "To get us a seat at the table. The improvements we've made here in this facility have put us in a good position going forward."