By Andy Home
LONDON, May 24 (Reuters) – Aluminum is classified as a critical mineral by the United States and the European Union.
You wouldn’t know it from the perilous state of primary metal production on both sides of the Atlantic.
High energy costs, particularly in Europe, have caused several foundries to close or reduce production, with the result that operating rates are the lowest this century.
In 2020, the World Bank identified aluminum as a “high impact” and “transverse” metal in all existing and potential green energy technologies.
Yet aluminum is not even on the list of metals covered by the European Critical Raw Materials Act (CRMA), which set goals both for domestic production and import dependence.
The United States has attempted, through import tariffs, to support its domestic producers, but with little lasting success.
Even the Cut Inflation Act, with its generous subsidies for domestic metals, is unlikely to work without solving the green energy paradox of aluminum.
DROP IN PRODUCTION
Western Europe’s primary aluminum production has been declining since 2017, but Russia’s invasion of Ukraine and the resulting spike in energy prices has accelerated the downward trend.
Production fell 12.5% last year and has fallen further this year, with the region’s annualized production averaging 2.7 million tonnes in the first four months of 2023, according to the International Institute of aluminum (IAI). West European rates exceeded 4.5 million tonnes fifteen years ago.
U.S. primary metal production has been declining since 2019, with two of seven domestic smelters fully curtailed and three operating at reduced capacity, according to the United States Geological Survey (USGS).
The USGS estimates that domestic production was operating at just 52% of capacity at the end of last year, with import dependency falling from 41% in 2021 to 54%.
The decline in Western production contrasts with the rise of China, which now accounts for around 58% of global production, the kind of dominance that has sparked major relocation efforts in other critical minerals such as lithium. and rare earths.
While the US market can rely on Canada for primary aluminum supply, Europe has traditionally relied on Russia, now a very problematic long-term partner.
Even allowing for greater recycling, the world will need an additional 25 million tonnes of primary production capacity if it is to meet its emissions reduction targets, according to the IAI.
Aluminum is used directly in all new energy technologies, especially in solar power, where it makes up 85% of photovoltaic (PV) components in the form of the frames that hold PV panels together.
The metal’s future demand profile is also linked to the acceleration of the deployment of electric vehicles. Automakers are using more aluminum to lighten their cars for greater battery efficiency.
The amount of aluminum used in European cars has increased by 18%, from 174 kg in 2019 to 205 kg in 2022, according to automotive consultancy Ducker Carlisle in a report commissioned by European Aluminium.
The report predicts that this trend will continue, with the average aluminum content expected to increase from 205 kg in 2022 to 237 kg by 2026 and 256 kg per vehicle by 2030.
The future should be bright for the beleaguered aluminum smelters of the West, especially as Europe and the United States channel government funding into green acceleration paths.
WIDENING OF THE GAP OF SUPPLY AND DEMAND
The problem, however, is that too much of this government largesse goes to the demand for aluminum and not enough to the supply.
The Inflation Reduction Act, CHIPS Act and Infrastructure Investment and Jobs Act will channel $1.25 trillion into green energy sectors, says US think tank SAFE for strategic industrial metals. (“Legislative Analysis for the U.S. Aluminum Industry”, May 2023)
Since all green energy applications, from solar to wind to electric vehicles, use aluminum, the combined effect is to accelerate demand.
However, the amount of finance available for aluminum supply in the form of manufacturing credits and subsidies for domestic processing amounts to just $126 billion, according to SAFE. Moreover, the investment is “contingent on decarbonization and the financing is very competitive”, he notes.
BE LEFT BEHIND
Carbon is at the heart of the aluminum green energy paradox.
The metal is both an essential material for enabling economy-wide decarbonization, but at the same time one of the most emitting industrial metals, especially foundries powered by fossil fuels.
“By setting decarbonization conditionality for supply support and simultaneously increasing demand across multiple sectors, the United States locks itself into this cycle,” SAFE asserts.
In other words, simply providing funds to foundries to reduce their direct emissions will not solve the problem unless you simultaneously invest in greening their power supply.
The carbon problem is made worse in Europe by the Carbon Border Adjustment Mechanism (CBAM), which “will do more harm than good”, according to Emanuele Manigrassi, senior director of regulatory affairs at European Aluminium.
“We expect CBAM to only increase the costs of producing and consuming aluminum in Europe, without reducing global emissions,” Manigrassi wrote in a May 17 blog post.
Energy, especially green energy, holds the key to preserving a primary aluminum production base in Europe and the United States.
US policy in its current form “threatens to leave its own aluminum behind” by failing to recognize the metal’s green power paradox, SAFE warns.
The US and European sectors need a more holistic approach from policy makers.
The EU could start by including aluminum in the CRMA.
Europe’s primary aluminum sector is facing an existential crisis, Europe Aluminum secretary general Paul Voss told a forum held jointly with Eurometaux last month.
“If the political signal is that this material is not very important, of course you can let it go to the wall,” he said.
But if Europe wants to stay in the primary aluminum manufacturing business, “just put us on the damn list.”
The opinions expressed here are those of the author, columnist for Reuters.
Primary aluminum production in Western Europe https://tmsnrt.rs/3okRwca
U.S. Primary Aluminum Production https://tmsnrt.rs/3BQFiLi
(Editing by Sharon Singleton)
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