By Lex Silbernagel, Special Projects Manager – Utility
Neither supply nor demand are major concerns for aluminum currently. Instead, challenges revolve around production costs, labor and transportation.
Why it matters: Like copper, aluminum is a major component in electrical infrastructure, including wire, cable, connectors, transformers and more.
Understanding the following three trends will help you stay one step ahead and avoid surprises related to material costs and availability affected by aluminum.
Aluminum 101
First, it’s helpful to know how aluminum is made.
Aluminum is the most abundant metal in the earth’s crust, but it is always found in compound form — most commonly bauxite ore— never its raw state.
Primary production is how we get pure aluminum:
- Bauxite ore is mined from the ground.
- Bauxite is sent to refineries to make alumina.
- Aluminum is extracted from alumina using a process called electrolysis.
Secondary production refers to aluminum that’s recycled. Aluminum is infinitely recyclable, and 75% of aluminum produced since 1880 is still in use today.
Trend #1: Recycling
Outside of iron and steel, aluminum is the most-produced industrial metal. Light, strong, flexible and non-corrosive, aluminum is one of the most widely used and recycled metals in the world.
To keep up with demand from the green transition, aluminum production must be increased.
About two-thirds of aluminum currently comes from primary production, which is increasing due to higher demand and less environmentally friendly because:
- Red mud left behind during alumina production is not environmentally friendly.
- Primary production requires significant electricity.
- In 2021, over 66% of primary aluminum was produced using coal or gas generation.
But recycling can save up to 95% on energy costs. Currently, Europe and North America recycle aluminum to meet two-thirds of their demand. Global secondary production is expected to increase by 70% to equal 44% of total aluminum produced by 2035.
Takeaway: Recycling is key to the future of aluminum.
Trend #2: China’s economy
China dominates the global aluminum market and is the second largest producer of bauxite (59%) and the largest producer of alumina (54%).
It’s also the largest producer (59%), consumer (46%), exporter (29%) and recycler (24%) of aluminum.
Notably, China imports 38% of the bauxite it turns into alumina because its domestic reserves primarily consist of low-grade bauxite. Transporting millions of tonnes of bauxite from Guinea and Australia is expensive.
All this means aluminum is highly influenced by China’s economy — which is experiencing two trends:
- Supply: Factory shutdowns and power curbs are disrupting manufacturing output for finished and semi-finished goods.
- Demand: The slowing global economy, especially in China, is relieving demand pressures on aluminum.
Takeaway: Watch China to understand where aluminum — and copper — will go.
Trend #3: Energy costs
You may be thinking, “What about Russia?”
Currently, I do not expect aluminum supply and demand to be impacted significantly by the Russian-Ukraine conflict as Ukraine, Russia and Belarus make up a small percentage of the global aluminum market.
- Russia only accounts for 1.6% of global mining production for bauxite.
- Russia and Ukraine produce 3% of the world’s alumina.
- Russia is the third-largest producer of aluminum, but it’s only 6%.
However, the conflict’s contribution to rising energy costs (especially in Europe) are worth watching, as low-cost electricity represents about 40% of the cost of aluminum.
Recommended podcast: Higher metals prices are likely in 2023 (S&P Global)
Takeaway: Energy prices greatly impact aluminum.
Final thoughts
Recycling and plentiful availability of mining sources can meet demand needs through the next several years. China’s economy and energy costs will determine what the future looks like for aluminum.
Read more:
- What’s Next for Copper? How Mortgage Boycotts, A Smiling Dollar and Clean Energy Impact Copper Prices
- Why Isn’t the Price of Wire Following the Price of Copper?
Disclaimer
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