Through 2022, aluminium markets have been affected by significant events in both Europe and China. Russia’s invasion of Ukraine generated uncertainty for supply coming from the second largest producing country along with its flow-on impact on global energy markets. Energy rationing in China affected production from the largest producing country early in the year while its continued pursuit of a zero-covid policy crimped demand.
Prices
An energy crisis emerged in
late 2021 with curtailment of significant production in China and a global
supply squeeze. Drought conditions saw hydropower capacity in Sichuan and
Yunnan fall, with smelters having to curtail production. This saw prices start
the year relatively elevated at ~US$2,900/t. Russia’s invasion of Ukraine and
the uncertainty over supply chains saw European prices jump, reaching an
intra-day high of over US$4,000/t in March.
Physical metal from Russia
remains unsanctioned and capacity returned to production in China. Coupled with
subdued demand caused by China’s covid-zero policy and energy struggles in
Europe, prices largely eased from these early-year highs and, despite supply
curtailments in Europe, have eased to ~US$2,500 for the majority of the second
half of the year.

An arbitrage between Europe and Asian prices was caused by the
loss of local supply in Europe and difficulty securing physical metal after
warehouse stocks had largely moved to the Asian region. This saw premiums in
both Europe and the US surge in the first half of the year. A softening of
demand has seen them since ease.
Alumina markets have followed a similar trend to aluminium. FOB
Australia prices surged in the wake of Russia’s invasion amid supply concerns—including
removal of 1.7Mtpa in Ukraine itself—before easing over the rest of the year.

Imports/Exports
Physical Russian metal has,
to date, not been sanctioned, although some consumers have been
self-sanctioning. Major consumers Novelis and Boeing have confirmed they were
not entering contracts for Russian metal in 2023. Constellium confirmed it will
continue accepting Russian metal as physical material has not been sanctioned—also
noting it only makes a small proportion of their purchases.
Chinese supply has largely offset European supply curtailments
with China’s producers taking advantage of price arbitrage. Typically, a net
importer of primary aluminium, domestic producers are willing to take advantage
should higher prices elsewhere cover export taxes on unwrought material.
Russia’s invasion of Ukraine
led the Australian government to place a ban on alumina and bauxite exports to
Russia. Rusal’s 20% ownership of the QAL refinery in Queensland has also been due
to Rusal’s major shareholders being placed under sanctions. This has seen a
rise in alumina exports from China. It is assumed China is purchasing more
alumina and on-selling to Russian smelters.

The Green Theme
The emerging Green Economy remains
a major theme and will provide significant opportunity for aluminium demand
growth. Potential applications focus on light-weighting for improving the
battery range of EV’s, its use in some battery technologies as well as its
application in the associated infrastructure which will need to be developed.
Along with the benefits of its infinite recyclability, the outlook for
aluminium within the Green Economy is bright.
This ‘Green’ focus, in turn,
has led to increased attention on reducing the emissions associated with
aluminium production. While recycling reduces energy requirements, ~95% from
primary production levels, the forecast increase in demand will still need
primary metal production to meet the increase. Attention will largely turn to
smelters with hydroelectric power sources which allow the production of ‘green’
and low-carbon aluminium products.
Most of the new capacity
coming online—particularly outside China—is targeted at the nascent low-carbon
market. Alumar’s restart which has progressed over the year was dependent on
securing suitable hydropower supply and Middle East producers are looking to
link production volumes to PPA with solar farms.
Relying on recycled
post-consumer scrap, Norsk Hydro is able to produce products with low carbon
footprint, such as its Hydro CIRCAL extrusion ingot, which is made up of 75% recycled
aluminium and has a footprint of 2.3kgCO2/kgAl. Further, its recycling system
can produce near-zero carbon aluminium via using 100% recycled post-consumer
scrap, attaining an emission footprint of 0.5-1kgCO2/kgAl.
To attain carbon
neutral aluminium, Hydro is looking at replacing natural gas with renewable
energy as well as carbon capture solutions and its novel HALzero reduction
technology. This trend of decarbonisation has also been present across other
major aluminium producers in 2022 with Alcoa and Rio Tinto progressing their
ELYSIS inert anode project.
A 10% increase in low-carbon aluminium is expected
to be seen in 2023, as well as further increases in subsequent years.
Capacity Developments
China remains exposed to
having to curtail in the face of power disruptions. Drought conditions have
harmed hydropower sources—potential Green Aluminium—and incurred curtailments.
While they often ease through the middle of the year, it appears to be a
consistent risk, particularly in the high-power demand winter season.
Forced
curtailments are likely to be seen in the future. Should China persevere in its
energy efficiency and decarbonisation efforts, are we seeing an end—or at least
slowing—of its seemingly infinite production growth? Will future capacity
developments have to be seen elsewhere?
Europe has borne the brunt
of surging global energy prices and has been the region most affected by
curtailments, with around a third of its output being cut throughout the year.
AIP’s Dunkerque smelter has curbed 20% of its 290ktpa capacity while Speira has
curtailed 50% of its 140ktpa Neuss smelter.
The 283ktpa ARLO Slatina aluminium
smelter in Romania was curtailed in early 2022 as the company was unable to
affordably produce aluminium. Hydro’s 175ktpa Slovalco smelter was already 40%
curtailed at the beginning of 2022 but was fully curtailed by the end of
September.
Facilities least affected by
the energy price surge were those powered by renewable energy sources. Yet, even
these smelters saw some curtailment in their production as falling demand would
result in a stockpile build-up if production was kept at capacity.
Hydro has partially
reduced production from its Hydro Karmoy and Hydro Husnes smelters in Norway, which
corresponded to a production cut of 110-130ktpa.

Alcoa and JV partner, South32,
have commenced the restart of the 268ktpa Alumar smelter in Brazil, which had
been idle since 2015. Alcoa also brought an additional 35ktpa at the Portland
smelter in Australia—which had not seen service since 2009. Efforts have also
been made to return Alcoa’s 280ktpa Intalco back online but have been stymied by
an inability to secure an appropriate power deal.
Adaro Mineral announced
plans to build a 500ktpa aluminium smelter in North Kalimantan, Indonesia,
scheduled to start operation by early 2025. The project has a potential total capacity
of up to 1.5Mtpa, in which a second 500ktpa expansion phase is scheduled for
the end of 2026, and the final 500ktpa expansion phase to come online by 2029
end. The project investment is estimated at US$2bn, which also includes the
construction of smelter, power plants and port facilities.
In the alumina space, supply
growth primarily came from the return of production capacity in China which had
been curtailed through the country’s energy crisis in late 2021. Nanshan’s 1Mtpa
Bintan refinery and Hongqiao/Cita Mineral’s Well Harvest 1Mtpa expansion also
ramped up in Indonesia.
Russia’s invasion of Ukraine
has seen the 1.7Mtpa Mykolaiv refinery fully curtailed and likely damaged.
Owned by Russia’s Rusal, the supply hit has affected the company’s own
integrated supply chains and, along with Australia’s ban on exports, seen it
look to China to fill supply gaps. The Russia-Ukraine war has also created
concerns for the 2Mtpa Aughinish refinery in Ireland.
Wholly owned by Rusal,
the plant has suffered from regional energy costs as well as uncertainty
generated by potential sanctioning of Russian businesses. The plant is a major
regional alumina supplier and curtailment, or disruption of its operations will
further increase input costs for the region’s smelters.
To date, the refinery
is understood to be continuing to operate at near capacity. The energy crisis
in Europe, arising from the invasion, did extend beyond the smelting sector to
affect alumina producers. Alro’s 600ktpa Tulcea refinery in Romania was fully
curtailed with soaring energy costs cited as the reason.
A recovery plan for the Jamalco
refinery in Jamaica following a 2021 boiler house explosion, which removed
1.5Mtpa of capacity from the market, was expected to see a restart of
production in mid-2022 and a return to full capacity by mid-2023. News on the
progress of this project has been sparse.
Bauxite
In the bauxite space, the
focus has remains firmly on West Africa. Soaring exports out of Guinea, with volumetric
increases largely headed to China, have continued unabated since the 2021
military coup.
In 2022, Guinea’s military government have made attempts to spur
development of domestic downstream capacity and move up the value chain in its
bauxite industry by demanding multinational firms operating there to facilitate
the process, calling for concrete plans for refinery developments.
However, the
companies are not exactly sprinting to realise any refinery developments citing
a range of logistic and energy issues. Guinea’s issues may be solvable via
hydropower expansions and governance reforms, but both will be difficult to pursue
given the unstable political environment.
A total ban on bauxite
exports from Indonesia is expected in the not-too-distant future to incentivise
the domestic production of alumina, in a bid to improve its economy via exports
of semi-finished and finished products. This will likely see a ban on raw
exports, similar to nickel. Currently, Indonesia’s main consumers of its mined bauxite
are its neighbouring Asian countries, including China.
China will continue looking
to secure alternate supplies for its increasingly imported bauxite-focussed
domestic refining capacity. Alternatively, Chinese
companies will look to develop capacity overseas, as starting to be seen in
Indonesia, and are likely to be a first mover in any new development in Guinea.
The export ban poses little concern to China as it has partially diversified
its sources over the years—predominately securing Guinea supplies, reducing
dependence on Australia.