More aluminum on the way

According to London-based market analyst Roskill, the aluminum industry is set to boost primary capacity by 10 million tonnes per year over the next 5-7 years.

In a study titled The Economics of Aluminium (eighth edition), Roskill reports that 34 primary aluminum-smelting projects with a total capacity of 7.6 million tonnes per year are being considered. Twelve are greenfield projects and the remainder are expansions to existing smelters. New projects in China will add a further 3.8 million tonnes per year.

The report predicts that world demand for aluminum will grow by an average of 2.9% per year to 42.2 million tonnes by 2008. The report forecasts that the transport sector will perform best, with a growth rate of 5.2% per year. With the growth of consumerism in the highly populated countries of Asia, consumer durables are expected to show a growth rate of 3.5% per year. On a regional basis, Roskill expects the Asian market to grow at 4.3% per year, while growth in the more mature North American and Western European markets will be roughly 2% per year.

In terms of production, Pittsburgh, Pa.-based Alcoa has been by far the world’s largest aluminum producer, accounting for 13% of global output in 2002, followed by Russia’s RusAl, with 9.5%, Montreal-based Alcan, with 8.6%, and French aluminum giant Pechiney (tentatively set to merge with Alcan), with about 5%.

The report adds that reductions in costs, brought about by economies-of-scale and more efficient use of energy, are enabling aluminum producers to remain viable at lower price levels. At the same time, high energy costs have forced older, smaller smelters, largely in the U.S., to cut back or close down. The increasing efficiency of the aluminum production industry is borne out by the fact that in 2003 prices are at their lowest level ever in constant dollar terms, yet primary capacity is set to expand over the next 5-7 years.

Between 2000 and 2002, supply of primary aluminum grew at 3.3%, year over year, compared with 2.2% for consumption. Much of the increase in output was in China, where year-on-year production increased by an average of 14.2% between 1993 and 2002. It is now the world’s largest producer, representing 16% of global output. However, the report says that despite rising production, dependence on imported alumina continues to grow and the worldwide deficit is expected to reach 5 million tonnes by 2005. China is handicapped by a lack of suitable bauxite resources, resulting in high energy consumption and poor-quality alumina. High power tariffs are contributing to production costs, another problem for the Chinese aluminum industry.

Consolidation of the Russian aluminum industry in 2001 produced two major groups, RusAl and Sual, which operate the world’s largest capacity smelters. In 2002, Norsk Hydro acquired the German company VAW, while Hydro Aluminium of Norway became the world’s fifth-largest producer of primary aluminum.