Futures & Commodities

Inside the world's largest aluminum-lithium plant


Lafayette, Indiana, is now home to the world's largest aluminum-lithium facility, a massive warehouse on a 170-acre, multi-building plot that took $90 million and two years of construction to create.

Inside Alcoa's aluminum lithium factory

Alcoa officially unveiled the new plant Thursday, one of three such facilities the aluminum giant is developing to better service the aerospace industry.

"The future of aviation is being built with aluminum lithium, and Alcoa is making big moves to capture that demand," said Klaus Kleinfeld, chairman and chief executive of Alcoa, in a release.

Called the Casting House, the plant will forge aluminum lithium alloys to be manufactured into wing skins, fuselage skins, wing stringers, floor beams and seat tracks for commercial jets built by Boeing, Airbus and Gulfstream. Earlier this year, Alcoa announced a $1.1 billion, multi-year contract with United Technologies' Pratt & Whitney subsidiary to produce the first-ever aluminum alloy engine fan blades. The plant will also forge metal for defense contracts and ULA and SpaceX rockets. It employs 75 workers.

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The facility marks the latest installment in an aggressive push by Alcoa in aerospace. The company is doubling down on the massive industry, which pulls in roughly $120 billion each year in the U.S. alone. It's pouring hundreds of millions of dollars into manufacturing facilities, including a $100 million jet engine parts facility that will focus on nickel alloys. And its $2.85 billion acquisition of jet engine parts maker Firth Rixson is set to close by year's end.

Machines at Alcoa's extrusion plant in Lafayette, Ind., make aluminum-lithium parts for aircrafts.

The expansion is already translating into revenue, Alcoa said, with new 10-figure deals inked with Boeing and Pratt & Whitney. The Casting House alone already has $100 million in revenue booked for 2017.

Alcoa and other metals companies have provided parts to the industry for decades, but new technologies and the push for more fuel-efficient planes is making aerospace manufacturing increasingly attractive—a high growth business with high margins and long term potential, since companies like Boeing have seven-year backlogs.

"If you can be on the cutting edge of application development for when a new airplane or engine is designed, and you are at the table with the customer, then in many ways you are insulated from commodities because you are not making a commodity," said Eric Roegner, COO of Alcoa Investments Forgings, Castings and Extrusions, the division overseeing aerospace and defense manufacturing.

And that's the key for a company like Alcoa. The economic downturn caused raw aluminum prices to tumble on the London Metals Exchange, as weak global economic growth and a glut of supply weighed on the market. Aluminum prices have gained 17 percent this year from their January lows, but remain more than 25 percent below their 2011 peak.

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Aluminum companies have dramatically cut their lower-margin upstream operations, idling smelters and closing mines, focusing more heavily on midstream and downstream businesses that create finished products for other companies. That's meant a push into the auto space for Alcoa. One example: The company is supplying Ford Motor with aluminum for its new F-150 pick-up trucks, replacing steel in a move the entire car industry is watching closely. And of course, it's meant aggressive expansion in aerospace.

"Alcoa is going through a transition where they're focusing more on their value added products and this is particularly true in their aerospace products," said Josh Sullivan, a Sterne Agee senior research analyst who cover aerospace, defense—and Alcoa.

Alcoa shares have rebounded more than 45 percent this year. The company will report its third- quarter earnings Oct. 8.