The Alumina Chronicles:
The Global Aluminium Market
September/October of 2019
Earlier this year, Arconic Inc. announced an investment of approximately US $100 million to expand its
hot mill capability and add downstream equipment capabilities to manufacture industrial and
automotive aluminium products at its facility in Alcoa, Tennessee. According to The Aluminum Association,
this investment is part of more than US $2.6 billion in commitments and investments by the aluminium
industry in domestic manufacturing in the United States during the past 5 years. Much of this
growth – at Arconic and at other aluminium businesses – is driven by growth in the automotive sector.
There has been much discussion about the aluminium industry (and steel industry) in the past year and a half in the United States of America. In March of 2018, the Federal Government issued additional tariffs on aluminium and steel imports from a number of countries into the United States.
While the additional tariffs were placed on imports from many countries, the overall focus was chiefly on one specific country – China.
“Subsidized overcapacity [of the aluminium industry] in China continues to be a major problem and The Aluminum Association is calling for the United States government to address the issue as part of ongoing trade talks with China,” stated Mr. Matt Meenan, Senior Director of Public Affairs for The Aluminum Association. “A study earlier this year by the Organization for Economic Cooperation and Development [Measuring distortions in international markets: the aluminium value chain] documented massive subsidies for Chinese aluminum producers - $70 billion over the past 5 years. Fully 85 percent of the government support cited in the study went to five aluminum-producing firms in China. Meanwhile, while anti-dumping and countervailing duty action in the United States (on extrusions, foil and common alloy sheet) has limited Chinese aluminum imports to the United States, global exports of Chinese aluminum hit record levels last year.”
Primary aluminium production in the United States has decreased dramatically in the past 20 years, according to statistics from The Aluminum Association: In 1998, there were 3,712,687 metric tons of primary aluminium produced in the United States; in 2017, that number was down to 740,884 metric tons.
That trend reversed in 2018.
Production of primary aluminium increased to 896,652 metric tons in the United States in 2018, as detailed by The Aluminum Association. If monthly totals for the first 6 months of 2019 continue through the rest of this year, primary aluminium production will be higher in 2019 as compared to 2017 and 2018.
As the United States implemented the additional tariffs on aluminium and steel, a number of countries came to agreements with the United States regarding ways to mitigate or eliminate these additional tariffs.
As of the writing of this news column, no such agreement has yet been reached between the United States and China.
The initial additional tariffs have led to a large-scale trade war. The two main combatants – the United States and China. As one nation added additional tariffs to Product “A” imported into their country, the other nation added additional tariffs to Product “B” that was imported into their country.
The additional tariffs have grown to encompass substantial portions of many industries – not just the aluminium and steel industries.
The immediate future impact of this trade war on the aluminium industry in individual countries is uncertain, but long-term, the aluminium industry is still likely to see substantial growth globally.
“Robust demand will continue for aluminum throughout the world,” stated Mr. Chris Bayliss, Deputy Secretary General of the International Aluminium Institute. “We forecast demand for primary aluminum will increase by 50% by 2040 as compared to demand in 2017.”
Global demand in 2017 was 64 million tonnes of primary aluminium, according to the International Aluminium Institute.
In 2040, global demand is projected to be 92 million tonnes of primary aluminium, according to the baseline projections from the International Aluminium Institute in August 2019.
The transport sector is anticipated to be a key driver of the growth of the aluminium industry.
“We anticipate continued demand for aluminium sheet and other types of aluminium to be used in electric cars in coming years,” explained Mr. Bayliss. “Many in the auto industry are focused on using light-weight aluminium to fabricate battery boxes and other items for electric cars. Light-weight aluminium is critical for energy efficiency of electric cars to compensate for the heavier batteries needed to power these vehicles.”
In North America, recent trends show substantial growth in demand for aluminium in the United States and Canada. According to The Aluminum Association, demand for aluminium increased 45.1% from 2010 through 2017: “Demand for strong, lightweight, recyclable aluminium continues to grow for the 8th consecutive year.”
The Aluminum Association reported in 2018 that “The aluminum industry has committed and invested more than $2.6 billion in domestic manufacturing over the past 5 years, driven by growth in the automotive sector.”
The growth of the production of primary aluminium in the past 18 years is highlighted in this graph.
Note the substantial increase in production in China as well as the increase in production in the nations along the Persian Gulf.
(This image provided courtesy of the International Aluminium Institute.)
Segments of Aluminium Industry:
As many in the aluminium industry understand, there are actually four key segments of the industry – segments that can affect individual nations differently.
The first segment is the bauxite mining and alumina refining industry. Bauxite mining is located in the nations that have the natural resources that provide the key component needed for the production of primary aluminium.
The second segment is the aluminium recycling industry. This segment can be located in almost any nation, but is typically a key focus in many of the nations that lack bauxite mines and alumina refining facilities. The International Aluminium Institute has estimated that “three-quarters of all aluminium [is] still in productive use: 1.3 billion tonnes produced since 1888, [with] one billion tonnes still in use.” The Aluminum Association detailed that this high level of recycling is “because it [aluminium] can be recycled over and over again.”
The third segment is the primary aluminium industry. A number of the aluminium smelters are located in the nations that have low-cost energy sources to allow for economical production of primary aluminium.
The fourth segment includes the fabrication industries that utilize aluminium as a key ingredient in their finished products. This segment is typically located in nations that have efficient manufacturing operations producing high-value products with aluminium and nations that have lower-cost manufacturing operations producing commodity-type products with aluminium.
While the dynamics that affect each of these segments may vary, leaders within the aluminium industry anticipate tremendous growth in each of the four segments in the years ahead.
One nation that will likely see continued growth is China. Both within the nation’s borders and through the activities of Chinese businesses in other countries that have strong economic links with China.
Looking to the future, China has been initiating and strengthening economic ties with a variety of nations through its Belt and Road Initiative. This government policy of China, first announced as “One Belt, One Road” in 2013, is designed to enhance infrastructure development in nations throughout the world through the leadership of China.
“Aspects of the Belt and Road Initiative of China have an economic focus that impacts the aluminium industry,” stated Mr. Bayliss.
Bauxite Mining and Alumina Refining Industry:
Mr. Bayliss cited activities in Guinea as an example of the Belt and Road Initiative. According the United States Geological Survey, this African nation has the largest reserves of bauxite in the world.
“The growth of the aluminium industry in places like Guinea is part of the strategic efforts of the Belt and Road Initiative,” explained Mr. Bayliss. “These activities will likely help drive business between specific companies.”
“Guinea has become a major source of bauxite for the global aluminium market,” continued Mr. Bayliss. “The development of the bauxite mining resources in Guinea by businesses based in other nations – including, chiefly, China – has led to development of port facilities and transport infrastructures.”
Global Industry Analysts, Inc. issued a statement indicating that “The production of bauxite and alumina is concentrated in a few countries. The top five countries, account for about 87% of global bauxite production. On the other hand, China, Australia, Brazil, India, and Russia together account for about 85% of global production of alumina…The wide discrepancies in the production and consumption of both bauxite and alumina have resulted in a large international trade. Traditional bauxite mining hubs such as Australia and Brazil export both bauxite as well as alumina.” Global Industry Analysts, Inc. is a leading off-the-shelf market research publisher.
The United States Geological Survey reported that Australia, Brazil, China, Guinea, and India were the top five producers of bauxite in 2018, while Australia, Brazil, China, India, and Russia were the top five producers of alumina in 2018.
The International Aluminium Institute has estimated that demand for bauxite will increase by 50% by 2040 as compared to demand for bauxite in 2017.
Aluminium Recycling Industry:
The second segment – focused on aluminium recycling – is a key source for the production of new primary aluminium. Several nations have made recycling of the metal critical to their long-term industrial base.
Japan is one such nation.
“Japan’s primary aluminium industry largely collapsed during the energy crisis in the 1970’s, but Japan has a well-developed aluminium recycling industry that meets demand in addition to their import of primary aluminium,” said Mr. Bayliss. “Japan has a sophisticated closed loop recycling industry that allows for better sorting for aluminium recycling.”
Mr. Bayliss explained that “In nations with higher energy costs but with higher scrap availability, recycling of aluminium can produce substantial quantities of aluminium that can be used to manufacture new products.”
Like Japan, a number of European nations have put a focus on the recycling of aluminium products. This focus is partly because there are few places in Europe that have natural deposits of bauxite. “Raw bauxite is only found in limited places in Europe, including in Greece and Turkey,” detailed Mr. Bayliss.
“In Europe, the aluminium recycling market has been increasingly important to the overall aluminium market,” continued Mr. Bayliss. “There has been a shift to incorporate better and higher quality scrap aluminium into the overall aluminium recycling market. The higher quality recycled aluminium is then being utilized in the manufacturing process of new high-quality aluminium products.”
In North America, The Aluminum Association has reported that recycling of aluminium is a critical component of the aluminium industry in that region: “Used beverage container [beverage cans, for example] recycling is the most readily recognized of the recycling programs. Aluminum is also recycled at the end of life from products such as cars and building parts. Window frames, wire, tubing, and electronics are additional examples of aluminum that is recycled at the end of life.”
The International Aluminium Institute has projected that primary aluminium will continue
to dominate the supply of aluminium through 2040. (This image provided
courtesy of the International Aluminium Institute.)
Primary Aluminium Industry:
Smelters that produce primary aluminium are located in specific types of locales throughout the world. In years past, smelters were located in close proximity to businesses that used primary aluminium to fabricate products with aluminium.
The energy crisis in the 1970’s changed much of that dynamic.
“The primary aluminium industry grew substantially in the years after World War II in the United States, France, the United Kingdom, Japan, and other similar nations,” stated Mr. Bayliss.
“Investment in primary aluminium production in many countries stopped after the energy crisis in the 1970’s,” explained Mr. Bayliss. “What had been economical in prior years was no longer viable with higher energy costs.”
“Primary aluminium production works best in locations with low energy costs and long term availability of competitively priced electricity,” reported Mr. Bayliss. “As energy costs increase, the economics of an aluminium smelter become more difficult to sustain operations.”
Some of the nations with aluminium smelting operations have focused their efforts on an export market philosophy.
“The Canadian primary aluminium industry is based on exporting product,” detailed Mr. Bayliss. “Russia and the United Arab Emirates have developed their aluminium industries based on a similar export basis. All three countries have available energy resources as compared to other nations.”
“About 50% of the primary aluminium smelters have captive power resources globally,” said Mr. Bayliss. “Those areas that are dependent on the open energy markets face difficulties because of volatility of energy prices.”
“Iceland and the Gulf nations utilized their low energy costs to encourage the development of a primary aluminium industry to help diversify their economies,” related Mr. Bayliss. “Iceland wanted to diversify away from the fishing industry, while the Gulf nations wanted to diversify away from hydrocarbons.”
“The United Arab Emirates and other Gulf nations have significantly invested to help expand their primary aluminium industry,” continued Mr. Bayliss. “Bahrain has a healthy downstream industry; the United Arab Emirates and Saudi Arabia are integrating upstream.”
While Mr. Bayliss confirmed that “China today is a higher cost energy market,” he stated that “China has made a concerted effort to close aluminium smelters that were contributing to air pollution through a variety of incentives by the government. The nation is replacing older smelters, some after only 15 years of operations. Chinese businesses then have used modular construction techniques to replace capacity within its primary aluminium industry.”
“In comparison, some of the aluminium smelters in operation in older producing regions today are up to 50 to 70 years old,” explained Mr. Bayliss.
“The aluminium smelters in the United States are generally smaller operations as compared to some of the aluminium smelters operating in such places as China and the United Arab Emirates,” continued Mr. Bayliss.
The International Aluminium Institute also notes the potential for growth in the smelting of aluminium in Russia.
“Russia has the potential to grow a larger primary aluminium industry because of its hydro power potential in Russia’s Siberian region,” said Mr. Bayliss.
Not all nations and not all businesses are focused on future growth of the primary aluminium industry.
“Part of the supply dilemma in the primary aluminium industry is the short-term focus of many businesses,” related Mr. Bayliss. “Some of the existing smelting facilities are coming to the end of their industrial lives, while some folks in the industry are trying to shore up their existing markets rather than investing in new facilities.”
“In the 1970’s, there were substantial investments in construction of aluminium smelters in both Brazil and South Africa,” reported Mr. Bayless. “These countries were able to use the expansion of the aluminium industry to create jobs and allow development of their energy grids. In Brazil, hydro power helped enable the growth of aluminium smelters. In South Africa, energy was supplied through coal-fired stations.”
“In recent years, though, investment has waned in energy resources in these two nations,” stated Mr. Bayliss. “The aluminium industry is being priced out because of the cost of energy and increasing demands from other consumers.”
Beyond Brazil and South Africa, similar situations have occurred in North America and Europe.
“When an aluminium smelter closes,” said Mr. Bayliss, “rarely do replacement smelters open in the United States or in Europe.”
“Quick fixes are not sustainable in the primary aluminium industry,” continued Mr. Bayliss. “Once the primary aluminium industry has died in a nation, it rarely comes back without significant change to their energy systems and availability.”
The aluminium industry has been in transition for some time.
“While some of the pricing within the aluminium industry is based on integrated operations, increasingly the aluminium industry has separate pricing for bauxite, alumina, and primary aluminium,” detailed Mr. Bayliss.
The International Aluminium Institute has projected that manufacturers in North America will need to seek sources of primary aluminium elsewhere in the world.
“There is not sufficient primary aluminium production available for the future needs in the United States and Canada,” reported Mr. Bayliss. “Fabricators in those two nations will have to look elsewhere for additional units of primary aluminium.”
The International Aluminium Institute has projected substantial growth in demand for
aluminium through 2040. (This image provided courtesy of the International Aluminium Institute.)
Aluminium Fabrication Industry:
Other nations have strived to utilize all of the primary aluminium produced within their borders in fabricating new products composed of aluminium.
China is one of those nations.
“The demand in China for primary aluminium production is being matched by the supply of aluminium produced in the country’s aluminium smelters,” stated Mr. Bayliss. “While primary aluminium domestic supply and demand in China is equalized, there is excess supply of semi-fabricated and fabricated products. Those excess products are then exported around the world from China.”
“Overall, it is estimated that 35% of aluminium products fabricated in China are exported,” said Mr. Bayliss. “Some of these exports include iPhones and wheels, among other products that use aluminium.”
Measuring distortions in international markets: the aluminium value chain, a report issued earlier this year by the Organization for Economic Cooperation and Development, provided some context for the situation in China: “Direct support at the smelting stage is important, but trade measures also matter. China’s export taxes on primary aluminium, as well as its incomplete VAT rebates on exports of certain aluminium products, have served to discourage exports of primary aluminium and encourage production (and export) of semis and fabricated articles of aluminium. Access to cheap inputs has enabled Chinese producers of semis to expand production and compete in global markets at lower cost.”
“Chinese production of primary aluminium is anticipated to peak by 2030,” explained Mr. Bayliss. “There is some slowing down in demand for primary aluminium within China due to a comparable slowdown in the building and construction industry.”
In October 2018, Hydro held a groundbreaking ceremony for a US $100 million investment
to its manufacturing facility, seen in the aerial photograph above, in Cressona, Pennsylvania,
according to The Aluminum Association. The investment was designed to add “a new 96,000
square foot structure that will house equipment dedicated to producing aluminum for the
automotive market, upgrade existing facilities’ infrastructure, and modernize equipment.”
Do you have questions about the aluminum industry?
Governmental regulations? Company operations?
Your questions may be used in a future news column.
Contact Richard McDonough at aluminachronicles@gmail.com.
© 2019 Richard McDonough