Surging demand on the back of post-pandemic economic stimulus from China has seen aluminium metal prices surge over most of 2021. China has continued on its merry way as a net importer of the material.
While historically aluminium has seen an apparent
perpetual oversupply on the back of Chinese capacity development, the supply
side of the Chinese aluminium market has hit a fairly significant wall in the
shape of adherence to energy consumption targets and domestic decarbonisation
efforts.
An energy crisis and soaring prices impacted heavy
industry, particularly in the northern hemisphere. Demand in China was also hit
later in the year as a lack of power saw manufacturing indicators signal contraction.
The rolling Evergrande struggles and uncertainty in the broader
construction/real estate sector further impacted demand.
Starting the year near the US$2,000/t mark, prices spent most of the
year on an upward march, peaking near historic highs of US$3,200/t, a price
point not seen since 2008. The fall in demand in the second half of the year as
Chinese manufacturing contracted saw a moderation of prices to just above US$2,600/t,
where prices are seeing out the year. Overall, on the back of surging demand
driven largely by economic stimulus to support a post-pandemic recovery,
coupled with elevated supply concerns as stocks dwindled and China experienced
struggles with power, AME’s European aluminium prices have—despite easing off
inter-year highs—risen 27.3% over 2021 and will average ~US$2,500/t for the
year.

The strong demand in China saw regional aluminium
prices at a premium to the European price, with the arbitrage supporting continued
Chinese imports of available metal.
The China Vortex
China’s shift to being a net
importer of aluminium, which started—for the first time since September 2009—in
early 2020 as economic stimulus measures took hold post-Covid, has continued
largely unabated through 2021. China’s primary metal production growth has
stalled as its power-hungry smelters adapt to tightening energy efficiency
targets. Producers haven’t kept pace with domestic demand, meaning continued
imports have been needed to rebalance China’s domestic market.
Aluminium stocks in exchange
warehouses continued a long-term decline. As seen through 2020, exchange
warehouse stocks drifted eastward in 2021, closer to China, with warehouse facilities
in Malaysia holding much of the limited available material. The dearth of
readily available physical material in Europe and the US saw premiums in those
regions rise to record levels—the premium for US Midwest delivery hit US$750/t
in the middle of the year.
Rising economic activity
driving increased aluminium demand in China marched on relentlessly for most of
the year before hitting a speedhump in the December quarter. Manufacturing PMI suggested
a contraction in activity for two months in a row as the country struggled to
supply sufficient power to its industries, with its economic recovery apparently
starting to run out of steam.
The unfolding energy crisis
and decarbonisation efforts in China have led to mandated production capacity
cuts. Within Yunnan province alone, where hydroelectric power sources were
intended to underpin a reduction in emissions, up to 3Mtpa of production
capacity had to be idled. The country’s power struggles also saw China bring on
less new capacity than expected. Issues in Yunnan, predominately provincial power
consumption restrictions, have seen Hongqiao postpone the planned transfer of additional
smelting capacity to the province from coal-dependent Shandong.
The Green Theme
The emerging green economy was a major theme over the year and
will provide significant opportunity for aluminium demand growth. Potential
applications focus on aluminium’s use in light-weighting to improve the battery
range of EVs, its use in some battery technologies, and its application in the infrastructure
which will need to be developed to support the power transition. With this, along
with the benefits of its infinite recyclability, the outlook for aluminium
within the green economy is bright.
This ‘Green’ focus, in turn, has increased the attention paid to
reducing the emissions associated with aluminium production. While recycling requires
~95% less energy than primary production, the forecast increase in demand will
still require and increase in primary metal production. Attention will largely
turn to smelters with hydroelectric power sources which allow the production of
‘green’ and low-carbon aluminium products. The majority of new capacity coming
online, particularly outside China, is targeted at the nascent low-carbon
market.
2021 also saw apparent progress from Alcoa and Rio Tinto’s
ELYSIS joint venture aiming to produce carbon-free aluminium. Construction of a
commercial-scale demonstration plant commenced at Rio’s Alma smelter in late
June, and industry comparable sized test cells at the Research Centre
successfully produced metal.
Aluminium Developments
A number of expansion
projects were brought online and/or continued ramping up over 2021. Supply from
India increased as Vedanta started up its Jharsuguda expansion. Press Metal
also ramped up production from its third 320ktpa potline at the Bintulu smelter
in Malaysia. In the UAE, Emirates Global Aluminium (EGA) progressively started
up an additional 78ktpa of capacity across expansions to its three potlines.
Furthermore, late in the year, Rusal announced the opening of the first 430ktpa
phase of its long-awaited Taishet smelter, though this new capacity will make a
larger contribution to supply next year.
Early in the year, Rio Tinto
reached a power purchase agreement securing the future of the previously
imperilled 370ktpa Tiwai Point smelter in New Zealand until at least the end of
2024. Rio Tinto had previously announced its intention to close the smelter by
August 2021. Rio Tinto’s production was also affected by a 69-day labour strike
at its Kitimat smelter in Canada, which saw production temporarily reduced to
just 30% of its 420ktpa capacity. The company also announced a 2.5kt expansion
of its AP60 potlines at the Arvida smelter.
Alcoa has been particularly
active in the second half of this year, making a number of significant
announcements pertaining to its five-year review, started in 2019, of 1.5Mt of
aluminium smelting capacity. The company announced the restart of the fully
idled Alumar smelter in Brazil, bringing 268ktpa of capacity online, as well as
an additional 35ktpa from the Portland smelter in Australia, which had not seen
service since 2009. In mid-December, the company announced the permanent
closure of the 146ktpa Wenatchee smelter, which had been idle since 2015,
indicating the Trump Tariffs, which remain in place under the current
administration, will not save the US’s domestic smelting industry.
With China already stuck in
an energy crisis, should it hold the line on its energy efficiency and
decarbonisation efforts, are we seeing an end to—or at least slowing of—its seemingly
infinite production growth? Will future capacity developments have to take
place elsewhere?
Alumina
Despite constantly rising
aluminium metal prices, alumina largely failed to take the hint, staying around
the US$300/t mark. Some new capacity coming online maintained sufficient supply
before a number of major events later in the year tightened supply and saw
prices take off, though prices have moderated into the end of the year.
The price ratio between alumina and aluminium metal spent the majority
of the year near historical lows after the alumina price failed to ride the
coattails of the soaring metal price. This was predominately due to ample supplies,
particularly as Chinese smelting capacity was restricted or curtailed amid
efforts to meet provincial energy consumption targets earlier in the year, and
as new alumina capacity came online in Indonesia. Later in the year, events in
the sector—including a boilerhouse explosion at Jamalco, which removed 1.5Mtpa
of capacity from the market, and damage to a bauxite unloader at Alumar, which
temporarily crimped that plant’s production—saw prices rise and move closer to their
historic average pricing ratio of ~16% of prevailing metal prices. This was
assisted by aluminium prices settling around ~US$2,600/t.

The ratio variability is
reflective of producers’ shift away from metal-linked pricing contracts,
largely brought about when aluminium prices were low and alumina was subsequently
being sold for below the cost of production. Extended periods of a low-price
ratio, where alumina producers have not seen increases in metal prices flow
back, have seen—not unexpected—murmurings from alumina producers of trying to enter
back into metal linked pricing contracts, which purchasers—not unexpectedly—aren’t
interested in.
Several refinery
developments in Indonesia came online over the year, notably Nanshan/Press
Metal’s 1Mtpa Bintan project, which has started operations and is understood to
be heading straight to an expansion to double its capacity. Hongqiao also
completed its 1Mtpa expansion of the Well Harvest refinery.
Bauxite
In the bauxite space, the
focus has remained firmly on West Africa. Soaring exports out of Guinea, with
volumetric increases largely headed to China, have continued unabated, with a
military coup unable to slow their growth. With a total ban on bauxite exports
from Indonesia expected in the not-too-distant future, China will continue
looking to secure alternate supplies for its increasingly imported-bauxite-focused
domestic refining capacity.
A military coup in the
bauxite behemoth of Guinea, overthrowing a pro-mining president, initially sent
ructions through the aluminium value chain, with concern over the potential
impact on the supply of raw material. Aware of the country’s golden goose, coup
leaders made a concerted effort to allow the continued operation of the vital
industry. With these supply concerns unrealised, the country has continued on
its merry way shipping bauxite to the waiting masses (mostly China).