The rebound from the darkest days of COVID-19 has helped lead to a boom market for secondary commodities, including aluminum scrap. A new report from Netherlands-based bank ING predicts an era of sustained global demand for aluminum scrap may only be starting, with several factors involved.
An article by ING Senior Commodity Strategist Yao Wenyu, posted to the firm’s website May 20, says the world’s path to a net-zero carbon emissions economy means “the supply growth of primary aluminum is contained, especially from China.”
At the same time, Yao writes, overall global aluminum demand is poised to rise “driven by energy transition-related sectors such as transportation and renewable energy from China, the United States and Europe.” A hint of that transition is already apparent in the growth in electric vehicle (EV) sales in Europe and China, she adds.
China is by far the world’s largest producer of primary aluminum, but its total capacity is “likely to hit its ‘cap’ during the country’s 14th Five Year Plan [2021-2025], and primary production could plateau in the longer term,” Yao writes.
The report comes on the heels of a request by four aluminum trade associations asking the Group of Seven (G7) nations to respond to what the associations call “clear and compelling evidence today that existing multilateral subsidy rules are inadequate to remedy the scale and scope of state intervention in aluminum markets.”
The four associations making the request line up geographically with the G7 nations (Canada, France, Germany, Italy, Japan, the United Kingdom and the United States). The primary target of the subsidy investigation request is China, which the associations say could be standing in the way of the world “realizing a low-carbon economy.”
The trade associations refer to a recent report by the Organization for Economic Cooperation and Development (OECD), which it says estimates the value of China’s governmental support to range between 4 and 7 percent of the annual revenue of its state-owned primary aluminum firms. The associations say this is “in stark contrast” to firms from other parts of the world, which “received support in the vicinity of 0.2 percent of their annual revenue.”
A player in another of the world’s largest primary aluminum-producing nations, Russia, has announced an initiative to bolster its low-carbon aluminum output. Rusal, which trades its stock on the Hong Kong Exchange but has most of its operating assets in Russia, says it will “demerge its higher carbon assets into a separate company as part of its goal to achieve carbon neutrality by 2050,” according to a Reuters report. The Rusal name will stay attached to its lower-carbon assets.
In Europe and North America, aluminum producers including Alcoa, Hydro and Novelis all have taken steps to introduce low-carbon aluminum and/or include more scrap in their finished and semifinished products.
Considering the world’s environmental and economic growth targets, Yao of ING sees tension ahead in the secondary aluminum and aluminum scrap markets. She says the two trends “would presumably imply a steady increase of secondary aluminum production, as it contributes to aluminum supply at a much lower energy and emissions intensity that are both below 5 percent compared to primary aluminum.”
She continues, “The base case assumption is that secondary production will need to grow by a compound annual growth rate of 5.8 percent in the next five years, faster than [for] primary.” Pinpointing something well known to scrap processors, Yao adds, “Yet it is a big uncertainty, as the secondary supply of all metals is notoriously inelastic and subject to many changing conditions.”