Industry Structure

The Aluminium Story is a story of energy.

Not just of its consumption, but its transformation into a valuable metal with unique properties, that can be recycled and the energy and value retained.

The location of its production centres therefore is a function of availability of energy – long term, economically viable energy – as well as access to raw materials and markets for the metal.

Bauxite mines are obviously located where there are economically viable deposits of bauxite. Over time, as bauxite quality (as for all metal ores) declines, new deposits become economically attractive. Historically mined areas such as Australia, Brazil, Guinea and India are being joined by new and significant producers in China, South East Asia and West Africa.

Alumina refineries tend to be located close to bauxite mines and to port facilities, to allow for efficient transport of their product, although over time there has been an increase in volumes of bauxite shipped, such that the direct link between mines and refineries in some areas is weakened. The drivers for this are the refineries’ access to other input materials, including fuels, but also the move towards integration of refining and smelting activities in some parts of the world, such as China.

Aluminium smelter location is fundamentally driven by energy (power) costs and availability. Because smelters are generally built for long-term operation (over 30 years), they are most often either co-located with aluminium industry operated power generation facilities, or negotiate long term power deals, which allow producers to plan for production, based on stable energy costs.

Over the past two decades, a number of factors have come into play which have significantly changed the geographical location, but also the structure of the primary aluminium industry. First and foremost is growth in demand for the metal – a doubling in demand (and production) since 1990. Secondly, energy costs worldwide have risen and in some areas have been compounded by emissions taxation on energy suppliers, the costs of which is passed on to consumers, such as the aluminium industry. These have tended, generally, to have impacted the traditional aluminium production areas more than new areas. As well as this, long term energy contracts, negotiated in the latter half of the twentieth century, have come to an end, so that producers in traditional areas – operating older, less efficient, but fully paid for facilities – are now exposed to higher energy costs.

Thus, growth is focused on new areas of production, while traditional areas are seeing no new facilities and even reduction in production capacity. Regions such as the Arabian Gulf and Iceland, which have either excess or stranded energy and which are looking to diversify their economies (from hydrocarbons in the case of GCC and fishing in the latter) and to “export” their energy in the form of value-added aluminium products have seen significant growth.

China, however, has seen the most significant growth in both production and consumption since 1990, such that it is now the world’s largest producer and consumer of primary aluminium, with an almost 50% share in each. Here, the situation is slightly different. Chinese power is among the most expensive in the world – the unprecedented speed of growth in the Chinese economy has seen demand for power increase from both industrial and residential consumers and while power generation capacity is being added, prices are still very high. This, in addition to the fact that Chinese capacity is very new, also means that the energy efficiency of the Chinese smelting sector is among the best in the world.

However, the demand for aluminium in China, and moves at the provincial level to maintain high production and employment rates (and to maintain base load of power stations) is such that primary production continues to grow, almost in line with domestic demand.

Thus China is meeting its own demand for primary aluminium through domestic, but high cost, production. As China ramps up development of the west of the country and aluminium production moves from traditional production centres of Henan and Shanxi towards new areas of Xinjiang, Qinghai and Inner Mongolia, the Chinese pattern of production at the global level is being repeated at the provincial level. Interestingly, the growth of the aluminium industry in these new areas is playing an important role in providing base load for new power generation capacity, that will both drive economic development and meet the needs of a growing population with an increasing quality of life – while providing aluminium products, which will also benefit current and future generations.

By 2020, the International Aluminium Institute predicts, global primary aluminium production will exceed 70 million tonnes per annum. More than 60% of this metal is likely to be produced and consumed in China, but growing markets in Brazil and India and increasing accessibility of resources, including energy, in Russia, Africa and South East Asia, could change the pattern of aluminium production and consumption once more, this time southwards, as well as eastwards.

Deputy CEO

“The aluminium industry is not only growing – due to increasing demand for its products – but is also in a state of structural transition towards new centres of production; driven by access to long term, economically attractive energy, the growth of new markets and availability of raw materials.”