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The recovery after the collapse

The global aluminium market on its way out of the crisis

It is a fact that commodity markets have a cyclical nature. However, it should be recognized that the collapse of investments at a global level starting in early 2008 was absolutely exceptional as demonstrated by the most commonly used non-ferrous metal, aluminium.
The most obvious reference about the global economic crisis is contained in the range of figures referring to the performance of the light metal in the last ten years (2002-2010). Before the storm, between 2002 and 2007, the total world production of primary and recycled aluminium grew at a rapid pace between 5 and 10% per year reaching the peak in 2008 with 48 million tonnes/year. Then we witnessed the 9% collapse in 2009. Globally, then, the sector has been affected significantly by the crisis. The table shows the trend since 2003 of production and global demand for primary according to the estimates of the European Aluminium Association. We can see that already in 2010 both production and consumption are starting to resume their normal growth trend.
New concentrations of production and use in the world market
Aluminium production is highly concentrated geographically. The three areas of China, the EU and the USA together account for around half of the world production of primary and recycled aluminium.
The EU quota has decreased over time from 16% in 2000 to 12% in 2007 and 10% in 2009 (Fig. 1).The global structure of the industrial system of the primary metal still includes well-known names like Alcoa, Alcan Rio Tinto and Hydro, but there are also new players such as Rusal, Alba and Dubal, which are gaining a foothold in the world scenario. Recent data from the International Aluminium Institute (IAI) indicates that there are, excluding China, 117 primary plants worldwide, four of which are currently under construction.

Primary metal
The global use of primary aluminium increased significantly in the 2002-2007 period, reaching a peak of 37.6 million tonnes, but in the biennium 2008-2009 there was a drop back to 2006 levels. Looking at the future China and India will be the real engine of global demand for the light metal. China already experienced a significant production increase going from about 3 million tonnes in 2000 to nearly 13 million in 2009, making it the number one producer worldwide with a market share of 31%.
In terms of demand the trend is very similar, from 3.5 million tonnes in 2000 up to about 13 million tonnes in 2009, equal to 35% of the worldwide use of the metal.
In Europe the situation is different (Fig. 2), the demand has increased over the 2001-2007 period to reach the maximum of 7.3 million tonnes, but then there was the 2008-2009 downturn that plunged consumption to a minimum of 5.9 million tonnes, equivalent to 15% of the worldwide use. The end of the drop occurred in 2010 with almost 20% growth over the previous year. The US remains the third most important area of use of primary aluminium, with figures for 2009 close to 3.9 million tonnes. The US demand also experienced substantial growth in the 2001-2006 period followed by the collapse in 2007-2009 and significant recovery in 2010.
On the other hand, production in the Gulf Countries has grown significantly in the same period. The UAE showed growth of over 80% (up to 1 million tonnes) and Bahrain of 70% (nearly reaching 900,000 tonnes).
Iceland experienced also an interesting growth rate, going from 230,000 tonnes in 2000 to 660,000 tonnes in 2009.

Recycled metal
As for recycled metal, the total world production in 2009 stood at 7.9 million tonnes, equivalent to 18% of total aluminium production in the world. The first manufacturing country is the US, with 3.1 million tonnes in 2009, against a 2007 figure of 3.9 million tonnes, equivalent to about 40% of the world production. The EU is in second place with 23% of the total world production. China has also had significant growth in this area during the 2000-2009 period, but unlike for primary the quantitative levels of recycled are still relatively low, below 1 million tonnes, equivalent to approximately 7% of China's overall production of aluminium. Finally, the Japanese recycled metal market remained fairly stable over the 2000-2008 period with around 1.2 million tonnes but it suffered a tremendous 38% drop in 2009 with respect to the previous year.

The first changes
Originally and until a few decades ago, the global aluminium industry was characterized by strong vertical integration, but in recent times there has been a fragmentation process, as a result rolling, extrusion and foundry castings increasingly appear to be separate activities from the production of raw unprocessed metal, in terms of owner control. In other words, the large companies tend to focus on the production of raw unprocessed metal, primary or recycled, while the downstream processing, especially in extrusion and casting, is largely in the hands of fully independent enterprises, deeply rooted in the territory and with a strong market orientation.
Europe today, as a real example of a truly integrated company, has just Hydro whose activities go from alumina to semi-finished products.
Rio Tinto Alcan still has rolling and extrusion plants, but it seems to be following the path of dis-investment. Alcoa sold most of its extrusion activities to Sapa, still maintaining a moderate presence in the extrusion and lamination industry. Obviously it is impossible to generalize, because the downstream is not a homogeneous system. Just think of the enormous differences between the rolling process, which generally involves large plants and production figures which are focused on the global market, and extrusion, usually characterized by lighter and more flexible structures, which also pay particular attention to regional markets.

The European context
The production of primary metal in Europe is covered by six companies, three of which are not EU headquartered companies (Hydro, Rio Tinto Alcan and Alcoa); the others are the smaller Klesch & Company, TriMet and Aluminium de Grece.
In the EU 27 there are currently 18 primary production plants and, referring to the European framework in the broadest sense, to these an additional 11 other plants must be added located in Norway and Iceland, 7 and 4 respectively. The total production of primary aluminium in the EU declined progressively in the first decade of 2000, reaching a minimum of 2.6 million tonnes in 2009. France is the largest producer, followed by Spain, the Netherlands and Germany. The demand also hit its minimum of 5.9 million tonnes in 2009, with the participation of imported metal close to 60%.
Germany is the principal user of primary aluminium, with 1.3 million tonnes in 2009, followed by Italy (660,000), France (530,000) and Spain (490,000).
The European aluminium recycling industry is much more complex and includes a large number of small-medium sized refining and remelting companies, along with a few large production plants related to multinational companies. The production of recycled aluminium, which accounts for more than 40% (data from 2009) of all aluminium produced in the EU, is dominated by Italy, Germany, Spain and the UK, which together account for three quarters of the output. Europe is also the region of greater interest to understand the evolution of downstream processing, a sector which is of extraordinary strategic importance because it is the key point of junction with manufacturing applications.
This European downstream industry uses more than 12 million tonnes of aluminium and employs over 220,000 direct employees in its more than 2300 production units, more than 85% of the entire European aluminium industry.
This industrial system, especially for the extrusion sector, offers an revealing glimpse into very dynamic businesses, with many small-medium sized companies feeding with efficiency and competitiveness important downstream markets such as transport, building, construction, furnishings, machinery and packaging.
Even in the European extrusion system the evolution of the crisis was characterized by an initial sagging of the market in 2008, the lowest level reached in 2009, and finally by the recovery, already apparent last year and expected to be reinforced in 2011. This overview concludes with a comprehensive overview of the Italian aluminium system. It is possible to see that the overall figures of domestic production and consumption (Fig. 3) follow the trends reported at a world and European level, with a recovery in 2010 in line with the European average.

After the dark 2008-2009 period, the global aluminium market is returning to the trends seen during the evolution of this sector in recent decades. The news is that the centre of production and use of the light metal is increasingly shifting to the East and the impetus generated by those two bad years accelerated the differentiation between the trends in Europe and North America on one hand and new economies on the other, China and India in the forefront.
For the future, strengths and weaknesses can be already seen in the aluminium system of the old continent: the latter are represented in particular by energy costs, which have significant weight for the choices made in the primary industry.
Another weakness is the still very punitive approach regarding access to raw materials; in particular due to the persistence of an absurd 6% duty on imports of alloyed metals that places serious limitations on the development of the whole industrial chain. On the other hand, the strengths are characterized by two fundamental areas.
First is the technological soundness and wealth of knowledge, which allows the system to still benefit from attractive competitive advantages particularly for the most recent areas of industrialization. Second is the well-rooted recovery and recycling system based on a pool of old scrap for reuse, a valuable legacy of resources and energy that only the aluminium system of a traditional economy may have available. It is clear that the future of the European aluminium industry will be closely tied to its ability to be innovative, and to stay one step ahead of the competition from low cost countries. This ability is a characteristic that has always distinguished the light metal industry in both Europe and North America, and that now more than ever must be kept a priority to be able to propose more advantageous and competitive solutions to the market.


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