This article is from the Aluminum Spotlight: A Better Year for Aluminum Markets? session during ISRI2021. Many of the programs available in ISRI2021 will remain available to convention registrants through May 20 on demand. The exhibit hall will remain open during that time as well.
Supply disruptions at recycling facilities and reclamation centers, demand fluctuations in response to auto industry shutdowns and restarts, and ongoing transportation bottlenecks were just a handful of challenges impacting the aluminum market this past year. To make sense of 2020 and understand what 2021 may bring, speakers John Sacco, vice president of Sierra International and former ISRI chair; Andy Home, metals columnist at Thomson Reuters; and Lauren Wilk, vice president of government relations and international programs at the Aluminum Association, discussed major challenges and opportunities for the aluminum market.
China and the Global Market
For the last 20 years, China’s aluminum capacity growth has determined the pricing, trading, and political landscape for the industry, Home says. In 2020, China produced 37.3 million metric tons of aluminum, which accounted for 57% of global production. The country exported 4.6 million metric tons of aluminum. China’s ability to surge new capacity created a dampening effect not just in terms of outright price but also market volatility relative to other industry metals. Home believes China’s aluminum capacity is “about to run out of road.”
A few years ago, the Chinese government capped national capacity for primary aluminum at 45 million tons per year. “We’re starting to see Chinese production hit that de facto ceiling,” Home says. Because of Beijing’s most recent climate pledge, China likely won’t raise capacity. In 2020, Chinese President Xi Jinping pledged to peak greenhouse gas emissions by 2030 and to reach net zero by 2060. In response, Chinese smelters have transferred plants to the hydro-rich Yunnan province, but green power capacity is limited. In March, smelting capacity was curtailed in the city of Baotou in Inner Mongolia as the provincial government sought to meet its quarterly energy targets. “We haven’t seen this tension before,” Home says. “I think there’s a bit more road, but not much.”
Home notes China is importing aluminum for the first time since the global financial crisis. “The world’s biggest producer seems to be short of metal,” he says. Since January 2020, China imported 1.3 million metric tons of primary metal and 1.1 million metric tons of aluminum alloy. This trade inversion changes the global aluminum market. During the global financial crisis of December 2007 to June 2009, unsold metal piled up in Detroit, then shifted to the Dutch port of Vlissingen. Currently, unsold aluminum is sitting in China. Asian locations account for 90% of London Metal Exchange (LME) registered on-warrant stocks, 86% of LME “shadow” off-warrant stocks, and 22% of CME Group stocks. Chinese imports and the relocation of commodity-grade metal stocks to Asia have left other importing countries more vulnerable to disruption in the shipping sector, causing premiums to surge.
U.S. Aluminum Demand
From 2009 to 2018, the aluminum industry experienced its longest economic expansion in U.S. history. Demand in North America grew from less than 18.7 billion pounds in 2009 to 28.1 billion in 2018, a record peak. In 2020, demand was 24.5 billion pounds, a 12.8% decline from 2018. “We can peg the decline to COVID-19’s impact on the industry, downstream markets, and the economy,” Wilk notes.
Aluminum demand rebounded in the second half of 2020, as downstream markets improved. Demand in the second half of 2020 improved slightly over the second half of 2019. “It’s cause for optimism, but we’re a little wary,” Wilk says. In 2019, the industry saw its first year-over-year drop in demand since 2009.
U.S. Market Trends
The return of activity for downstream customers drove a return of aluminum demand. Aluminum beverage can shipments surged throughout the pandemic, increasing more than 6% year over year. In transportation, recreational vehicles increased 6%, up 35% year to date. Though they were hit by the global semiconductor shortage, passenger and light vehicle production returned to pre-COVID-19 levels in the second half of 2020. “We see excitement in that market if some of those supply chain issues get resolved,” Wilk says.
The construction market soared through the second half of 2020. Housing starts increased 7% in 2020. Can sheet shipments increased 3.3% and canning capacity is coming online in 2021 and 2022. In March, orders for aluminum mill products hit their highest levels since early 2018 and were up almost 13% compared to the first three months of 2020.
There are many questions for the aluminum industry including travel recovery; how the building and construction market will grow without support from commercial construction; environmental regulations; and federal investment in infrastructure, Wilk notes.
The U.S. Automotive Market
The Aluminum Association recently published a survey that reaffirms the market-share growth for aluminum in high-volume vehicles (passenger vehicles and light trucks). As aluminum auto body sheet use accelerates, new research indicates aluminum auto-body sheet scrap will likely reach an all-time high in the next decade. “It will hopefully present economic opportunities for recyclers,” Wilk says. Researchers analyzed opportunities in the recycling ecosystem to drive widespread adoption of more standardized closed-loop recycling processes. “[The Aluminum Association] believes manufacturers and recyclers can and should collaboratively improve the system,” Wilk says. Investing in separation and refining technologies and committing to design for recycling approaches will help ensure available scrap is recycled into valuable products.
New Uses for Aluminum
As countries set new sustainability targets and mandates, Wilk expects there will be renewed global infrastructure investments. All types of renewable energy will use aluminum in products and in electricity transmission. “We’re excited to see aluminum investments in the grid,” Wilk says. Additive manufacturing—3D printing—is another upcoming area. “[The Aluminum Association] thinks it will continue to be a source for innovation in the industry,” she says.
Aluminum Market and Shipping Issues
Home doesn’t see short-term resolution to ongoing global shipping problems, which include unreliable ships, port congestion, asset shortages, extended transit times, and significantly disrupted supply chains. He suspects the U.S. market will need to compete more aggressively for accessible material to import. “If all the stocks are at the wrong part of the world, the U.S. market is going to be more sensitive to any shipping issues,” he says.
Wilk suspects shipping issues will refocus policymakers’ efforts on resilient supply chains and domestic production. “I think it’s going to drive federal policymaker attention to some of the issues we’re interested in; about what will make a thriving aluminum industry in the U.S.,” she says.
Photo Caption: (Top to bottom) Andy Home, metals columnist at Thomson Reuters, John Sacco, vice president of Sierra International and former ISRI chair, and Lauren Wilk, vice president of government relations and international programs at the Aluminum Assocation discuss major challenges and opportunities for the aluminum market.