Total aluminium imports into Japan span across a range of products, primarily as unwrought (both alloyed and unalloyed) and wrought materials including flat-rolled products and waste and scrap metal.

Short to Medium Term Demand

AME forecasts Japan’s primary aluminium demand will increase to 2.1Mt over 2022, up 2% from 2021. This remains below the country’s primary aluminium demand prior to the 2008-09 GFC. Japanese aluminium consumption in 2021 exhibited a major rebound from more recent pandemic lows but has since been subdued due to lower demand from the automotive sector.

The global supply chain crunch, both through and lingering after the pandemic, as well as a microchip shortage, has seen Japanese automakers and parts makers—major consumers in the country—cut production.

This is a situation which is still yet to fully recover and is now being compounded by current events in Europe. Further, the situation is exacerbated by China’s Covid-containment measures which is also contributing to prolonged supply disruptions.

Additional growth of 1.8% is expected in 2023, with some upside present which is dependent largely on the recovery of Japan’s vehicle manufacturing volumes.

Japan is the largest demand centre in Asia outside China, the largest importer of primary aluminium by volume, and is a determinant of the region’s physical metal premium. The Main Japanese Ports (MJP) premium has been in recent retreat with the December Quarter set at US$99/t, down 33% from the September Quarter, reflecting the prolonged weak market fundamentals in Japan, namely in the automotive sector.

The automotive manufacturing industry represents the largest demand segment, accounting for ~40% of the country’s total demand. Initial fallout from the Russia-Ukraine conflict saw a rush for Russian aluminium supply by Japanese buyers. Continued flow of material, with Russian metals remaining unsanctioned, has seen the rise in port inventories suppressing premiums.

In the medium-term, Japan’s primary aluminium consumption is forecast to grow at a relatively subdued CAGR of 1.1% to reach 2.2Mt in 2027. A fundamental shift in Japan’s import and export trade in aluminium products weighs on the country’s aluminium demand growth.

Domestic product makers have been actively investing in overseas ventures to access lower production costs and growth in overseas demand. This has seen an increase in imports of finished and semi-finished aluminium products, gradually reducing the country’s demand for primary material.

Long Term Demand

Long term growth of primary aluminium demand in Japan is expected to remain relatively subdued, rising with a CAGR of 1.0% to reach 2.5t by 2040. Upside potential does exist should the country’s automotive and wider manufacturing sector succeed in transitioning to grow the supply components and vehicles required in a new-energy world, or further engage through advanced manufacturing required to support the transition.

The re-homing of offshore production capacity will be required to provide a significant boost to aluminium demand growth in the long term. This will cut down the number of manufacturers exposed to the sovereign risks of operating in other jurisdictions.

Japan’s Energy Transition

Japan has a net-zero target of 2050 and recently increased its interim emissions reduction target to 46% below a 2013 baseline—while making efforts to reach 50%—which is up from a previous target of 26%. Following the energy sector, the largest source of Japan’s CO2 emissions is its manufacturing industry, where most aluminium end up. As such, emissions reduction could affect the consumption of aluminium.

According to Japan’s Ministry of the Environment, the country emitted 1,150Mt of CO2 equivalent in its 20/21 financial year, a decline of 5.1%. This represented the seventh year in a row of decline and was driven by both reduced energy consumption—assisted by the COVID-19 pandemic—and lower emissions from the power generation sector due to increasing share of low-carbon electricity. This is due to the wider usage of renewables alongside the resumption of nuclear power plants.

In October 2021, Japan approved a Basic Energy Plan to help meet its revised 2030 target. The plan includes a revised energy mix target of 36-38% renewable electricity, 20-22% nuclear, 22% gas and 19% coal. Some concerns have been raised over the continued presence of coal in the energy mix and how this will impact the ability of Japan to reach its stated targets.

The Japan Aluminium Association (JAA) has outlined a Vision 2050 for how Japan’s aluminium sector can contribute to the country’s wide net-zero targets. Its key points include increasing the recycling rate of aluminium wrought products from the present ~10% to 50%, enabled by ongoing recycling innovation, and looking at potential energy savings in manufacturing to reduce CO2 emissions from the sector by 78%.

This includes consideration of improved CO2 intensity of primary aluminium production—this will only be achieved through sourcing from green sources, given Japan has no domestic production capacity.

Focussed on the Automotives

Japan has a potentially significant role to play in the energy transition. It is home to several major automotive manufacturers as well as significant manufacturers in the renewable energy sector. The uptake of electric vehicles is expected to increase demand for aluminium from the auto-sector due to its potential to improve battery range via its lightweight property.

Compared to their European counterparts, Japanese car makers have been less forthcoming with firm commitments to phase out internal combustion engines. Mazda, Mitsubishi and Nissan have not set target dates for PHEVs-BEVs only or BEVs only production. Honda has committed to BEV only in Europe—a relatively small market for the company—from 2022 and in the United States not until 2040.

Toyota, one of the world’s largest manufacturers, plans to produce 8 million electrified vehicles by 2030 and have 73 electrified models by 2025, of which 15 are BEV’s. They have also committed to stop producing ICU’s by 2040. Given their long-term experience with the Prius hybrid, the slow uptake is slightly surprising.

The company has been pursuing hydrogen fuel cells which may have led to it being slightly late off the mark with electrification. Nissan has indicated all its new cars will be electrified in the key markets of Japan, China, the US and Europe by the early 2030s.

Despite a lack of firm targets, growing demand for EV’s from the dominant market, China, as well as Europe, is expected to force manufacturer’s hands into more quickly shifting to electric. All major Japanese automotive manufacturers have a 2050 target for reaching carbon neutrality.