Global Aluminium Industry

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Global Aluminium Industry

MARKET OUTLOOK

Aluminium is one of the most versatile and essential materials for the global economy. The commodity’s extensive properties, including strength, conductiv-ity, recyclability, and lightweight make it the world’s second most used metal after steel. Aluminium finds major use in transportation and construction sectors. China dominates the global aluminium market in both production and consumption. Boom in the resi-dential and infrastructure markets drive its aluminium market.

Recent years have seen a continuation of volatility in aluminium market prices, with prices increasing from US$ 1843 per Tonne in August 2012, to a high of US$ 2087 per Tonne in December 2012. A few na-

tions have seen government intervention to absorb losses by aluminium producers, or providing tax breaks or cheaper energy. This government interven-tion is resulting in a large quantity of over-supply of aluminium suppressing prices further.

Worldwide, rising aluminum stocks have hampered production and cut down prices. Manufacturers have slowed down production to reduce pressure on prices. Industry estimates reveal that while primary aluminium production is growing at a CAGR of around 3%, the primary aluminium consumption is estimated growing at around 4% during 2012-2018.

Global Primary Aluminium Production vs. Consumption Trend (Million Tonnes), 2012-2018

Source: International Aluminium Institute (IAI), RNCOS

Note: E = IAI Estimation, e/f = RNCOS Estimation/Forecast

2012E 2013e 2014f 2015f 2016f 2017f 2018f

45.243.4

46.644.9

4846.6

51 50.349.548.3

52.6 52.554.3 54.5

Production Consumption

Global Aluminium Industry

MARKET SIZE AND GROWTH RATE

World primary aluminium markets have witnessed five consecutive years of surplus since 2008. How-ever, production which was in excess of consump-tion in 2008 contracted in 2012. The fall was due to low aluminium prices, driven by weak demand and high stocks. Consumption, on the other hand, increased at a comparatively faster pace by 6.8% in 2012.

Amongst key industry verticals, transportation accounts for 25% consumption share, followed by construction (24%), packaging (17%), power (12%) and machinery (10%).

Regionally, APAC dominates both production and consumption of Aluminium. China alone accounts for around 40% of global aluminum production and 45% of consumption. In the last ten years, China has quadrupled its consumption of alu-minum. Already accounting for 42% of global aluminium consumption, China is forecast to boost this share to 52% by 2025. Chinese growth

in aluminium consumption is largely driven by urbanization, goals and strategies of the Chinese Government has resulted in investments in infra-structure and housing which also consume large amounts of aluminum. Besides, the continued strong position of China as a producer of indus-trial and consumer goods for export result in large investments in the aluminum industry.

Source: RNCOS

Share of Major Aluminium Producers, (%), 2012 Share of Major Aluminium Consumers, (%), 2012

China China

Russia US Japan

Others

EU

EUCanada

Others India

38.1%40.0% 45.0%

22.2%

3.9%

4.5%

10.4%

14.0%6.4%

6.6% 8.9%

Global Aluminium Industry

MIDDLE EAST EMERGING AS MAJOR MARKET

Looking over the supply-side, the market is shifting towards the Middle East due to the availability of cheap energy in the region. Aluminium growth in Middle East further benefits from advantages such as rich bauxite reserves as well as economical energy. Also, the close proximity of the GCC region to European countries enables smelter operators to further reduce costs.

ENHANCED APPLICATION AREAS

The new markets for aluminum are found within aviation, solar cells, electronics, cars and new types of material for construction. Aluminum has already succeeded in entering part of the copper market since copper is higher priced and is heavier than aluminum. Therefore manufacturers can save costs and weight in their production if they are able to exchange copper materials for alu-minum materials.

SUSTAINABLE PRODUCTION TECHNOLOGIES

Researchers at the DOE’s Argonne National Laboratory and Noranda Falconbridge are developing a way to produce aluminum at significantly reduced temperatures. The ITP, working with Aleris Inc., among others, has supported the development of a radically new concept for melting aluminum—isothermal melting—that can dramatically improve energy efficiency in melting and other molten metal processes. Alcoa has launched a carbon capture technology at its Kwinana alumina refinery in Western Australia.

Opportunities

Opportunities & Challenges

Global Aluminium Industry

Challenges

PRICE VOLATILITY

In the past few years, aluminium prices have become very volatile, especially due to global eco-nomic uncertainties. During 2012, aluminium prices slipped to an average of US$ 2,053 per Tonne, down almost 15% compared to 2011. Renewed setbacks to global recovery and surplus situation led prices to fall below US$ 2,000 a Tonne during June-August 2012.

HIGH INVENTORY

The global aluminium market is set to remain in surplus over the next couple of years as demand growth failed to keep pace with rising supply. Global inventories have remained at 7 Million Tonnes since the beginning of the year equating to 60 days of consumption and more than double the levels seen before the financial crisis in 2008.

HIGH ENERGY AND CARBON COST

Another challenge is the demand to save energy and reduce energy consumption in all aspects of the primary aluminium production process. Also, challenge is to reduce the emissions of green-house gases from the aluminium production process. Both the electric power generation from fossil fuels and the smelting process are major sources of greenhouse gas emissions. Although significant progress has been made in recent years, this problem is not yet solved, and it will be one of the big-gest technological challenges for the aluminium industry in the years to come.

COMPETITION FROM SUBSTITUTES

Carbon fibre-reinforced plastic (CFRP), Titanium, Steel and Composite materials give stiff competi-tion to aluminum. The rivalry between substitutes would become harsher in the following decades as consumers continuously assessed not only the functional characteristics of competing materials but also their relative prices.

Global Aluminium Industry

Demand for aluminum will continue to rise, particularly in the emerging markets, due to lower per capi-ta consumption of the metal in these parts of world. Additionally, the demand of aluminum is increasing owing to high aluminum use in the construction and power transmission industries. Growing demand for “green” building is another driver. Furthermore, aluminum’s role in a wide range of building and construction applications is poised to grow, due to aluminum’s recyclability, light weight, reflectivity, and durability.

Usage of aluminum in automobiles will again amplify and continue its growth track as public demand for a greener environment and increased fuel efficacy compel policymakers to amplify fuel economy standards, reduce carbon dioxide emissions, and increase the usage of aluminum in automobiles. Be-sides, aluminum content in the aerospace industry, like aircrafts and missiles is expected to grow, reflect-ing its positive outlook.

Major players are concentrating on innovative technologies for production of aluminum so that the consumption of energy can be minimized. The future of the global aluminium industry will be influenced by its ability to minimize environmental impacts and to be considered as a solution to some of the prob-lems generated by CO2 emissions.

Further, legislation on CO2 emissions may impact both sides of the market simultaneously. Supply growth may to some extent be hindered by higher production costs related to emissions and higher raw material and power prices. However, CO2 caps may also favour the use of aluminium by encouraging energy efficiency and light-weighting, with potential beneficiaries in the transportation, power distri-bution & transmission, air conditioning & refrigeration, renewable energies, green buildings and other end-use sectors.

Way Forward

Global Aluminium Industry

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