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Aluminium: waiting for the rise in demand

Mumbai aluminium smelting Reuters/Vivek Prakash
Inside a smelting factory in Mumbai: the more sophisticated plants of the GCC now have almost 8% of the global market and will benefit from any rise in aluminium demand
  • GCC now major exporter
  • Market may lift in 2024
  • Decarbonisation may be a boost

With global aluminium prices soft and demand currently waning, the announcement last month of the launch of Kings Aluminium Industries’ AED750 million ($204 million) manufacturing and recycling plant in Abu Dhabi may have seemed unfortunately timed.

However, “long term” has always been the name of the game with this lightweight metal, as giant, billion-dollar smelters and manufacturing plants manoeuvre like Panamax-size tankers among shorter-term market currents.

Aluminium prices and demand may be suffering from global economic headwinds, but that may soon change, and perhaps even as early as 2024.  

Such a turnaround would certainly be good news for the wider GCC region, as it has emerged as a major net exporter of primary aluminium and a main value-added products supplier to Western Europe, the US and Japan, Zaid Aljanabi, principal aluminium analyst at the business intelligence company CRU Group, told AGBI.

Global players

While China, Europe and the US are the world’s top aluminium producers and users, the Gulf region has undergone an expansion in production, export and use in recent decades.

There are now six major smelter plants in the region: Aluminium Bahrain (Alba), Ma’aden Aluminium in Saudi Arabia, Qatalum in Qatar, and Sohar Aluminium in Oman have one each, while Emirates Global Aluminium (Ega) in the UAE has two operations, Emal and Dubal. Alba’s smelter is now the largest in the world outside China.

One important driver of this expansion has been the local availability of cheap electricity. 

With around 13 to 15 megawatt-hours of power typically required to produce one metric tonne of molten aluminium, the ability of GCC smelters to access cheap natural gas-generated electricity has made the Gulf’s aluminium some of the world’s cheapest.

At the same time, good international port connections and solid domestic demand in the construction and manufacturing industries have added to the Gulf’s attractions as a centre for aluminium production.

As a result, the region’s aluminium production capacity has risen from 120,000 tonnes a year in 1971 to around 6.1 million tonnes today. 

CRU calculates that in the past 20 years, the GCC has gone from accounting for around 3 percent of global primary aluminium production (or 4.4 percent excluding China) to 7.8 percent (17.8 percent excluding China). 

Figures from Fitch for 2023 also suggest that if “regional production” includes Turkey, the current regional proportion is around 9 percent, on a global output of around 70 million tonnes.

Raw materials

Aluminium production depends, however, on the supply of two basic materials, bauxite and alumina. 

It takes around 2 tonnes of bauxite to produce 1 tonne of alumina, and 2 tonnes of alumina to produce 1 tonne of aluminium. 

While the GCC states have the cheap energy to power these transformations, the supply of bauxite in the region is very limited. Saudi Arabia’s Al Ba’itha mine is the largest producer, with an output of around 7.1 kilotonnes in 2023. 

Alumina production is also limited, with small plants in Saudi Arabia and Turkey and Ega’s 2.37-kilotonne facilities in the UAE.

This means the region’s aluminium smelters use largely imported materials, with Africa often the main source. Ega’s Guinea Alumina Corporation bauxite mine, for example, is a major source for the Emirati aluminium maker.

Supply and demand

As the above figures show, China is clearly the global leader of the sector. 

The People’s Republic is responsible for more than half of global aluminium production, or around 41 million tonnes in 2023, according to Fitch. China’s consumption was also enormous that year, at around 42 million tonnes. In 2023, the whole of the rest of the planet consumed just 27.6 million tonnes. 

What happens in China therefore does not stay in China. Ewa Manthey, a London-based commodities strategist with ING, said: “Aluminium struggled this year, as China has been slow to recover from the Covid-19 lockdowns.”

Adding to aluminium’s woes, economic growth in Europe and the US has remained sluggish, Manthey said.

Decarbonisation to the rescue

Global aluminium prices have therefore remained soft. On the London Metals Exchange in mid-December 2023, aluminium was at its weakest since late August, at $2,123 per tonne. 

This may, however, be about to change.

The Chinese government is currently imposing a 45 million tonne cap on domestic aluminium production, as part of its efforts to decarbonise its economy. 

Aluminium smelters are heavy carbon emitters, although this can depend on the type of power involved.

Fitch’s senior director for metals and mining, Oliver Schuh, said: “If you’re using captive hydroelectric power, you can have 2 tonnes of carbon produced per tonne of aluminium. However, if you are smelting with captive coal-fired power, you can have 16 tonnes of carbon per tonne of aluminium. The difference is significant.”

China is currently trying to move some of its production away from coal-fired power to hydropower, by relocating plants. The country may therefore already be near capacity production, given the cap. 

At the same time, global stocks are falling, as producers cut output in response to soft aluminium demand. 

Fitch’s figures show surplus global aluminium production in 2021 was around 1.57 million tonnes. This fell to around 0.58 million tonnes in 2023, with 2024 likely to see a surplus of just 0.1 million tonnes and deficits emerging in the years after that.

Aljanabi said: “Supply reductions are likely tipping the market into a deficit. This underscores the urgency for new smelter capacities.”

Gulf producers may therefore find aluminium demand increasing in the years ahead, while recycling initiatives such as Kings Aluminium may also have great potential. 

Re-using the metal, rather than smelting new blocks, can help make up future supply shortfalls. Importantly, it can also save a large amount on emissions, an even greater concern for everyone, as the fallout from Cop28 continues to reverberate worldwide.

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