Aluminum: Geopolitical Disturbances, but with longterm
The global commodity markets have been highly volatile
during 2018: The year 2018 will be characterized in
history as a year the raw material price development
has been influenced by several geopolitical disturbances
mainly caused by the United States of America.
Crude oil price influenced by Iran sanctions
The credible threat of the US president to cancel the
nuclear agreement with Iran on 12 May 2018 results in
a jump of the crude oil price. After the enforcing of new
sanctions against Iran by the US during May 2018 the
crude oil price rose above 75 US-$ per barrel Brent
(see slide 1).
Price for oil in US $/barrel
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
During the first half of the year 2018, Iran extracted
constantly more on average than 3.8 mbd (million
barrel per day) of crude oil. At the moment around 70
per cent of the Iranian oil production is reserved for
exports. This equals a volume of around 2.7 mbd. A reduction
of the exports by only 0.5 mbd – and the US
aims a significant higher target – will bring the global
oil market into an imbalance. In 2018, the worldwide
demand for crude oil will rise by 1.65 mbd to nearly 99
mbd. Only a part of this future needs could be satiated
by a higher US production.
In 2017, the main customer of Iranian oil exports was
China, which purchases a quarter of total exports. In
addition India, South Korea and Turkey received an important
part of the Iranian production. During the first
half of 2018, India gave notice, that it will expand its
crude oil purchases from Iran significantly. We assume,
that China will ignore the sanctions by the US president.
Instead of lower oil imports, China will use the chance
to improve its position as a supplier of consumer and
industrial goods to Iran.
The announcement of Saudi-Arabia together with Russia
to raise its oil exploration, if necessary, eased the
situation on the global oil market and induced lower
prices. But the highly volatile oil price is a risk for the
further development of the global economy.
Sanctions against Russia affect Rusal
In 2018, even the global aluminum market was negatively
influenced by geopolitical disturbances. The
scarcity of supply in the aluminum market is a problem:
In total, we expect a slight supply deficit for the whole
year 2018. Therefore it was not a surprise, that the aluminum
price sky-rocketed after the public disclosure of
US sanctions against the Russian aluminum producer
Rusal in April 2018. Two weeks later the White House
in Washington has given the Russian group time for a
change of control by the end of October 2018. As a
result, the situation on the global aluminum market has
improved and the price has declined.
But Rusal‘s market power is very important. In the
year 2000, the company was created by a merger
of the aluminum division of Sibirsky Aluminium and
Sibneft. For example, Rusal exported around 3.2
million tons of aluminum in 2017. A loss of these deliveries
would result in an enormous shortage of aluminum
supply within Europe. But in addition, Rusal
is a leading producer of the intermediate product
alumina. Mainly the Irish alumina plant of the Rusal
group secures the input for several European and
American aluminum smelters. But in total the longterm
outlook for aluminum is very positive.
E-Mobility stimulates aluminum usage
The future demand for aluminum will get important impulses
from the automotive industry. In 2024 a global
production of around 108 million light vehicles (up to
2.8 t) will be seen with China as the leading manufacturing
location: Nearly one third of all cars will then be
manufactured in this country (see slide 2).
Light Vehicle production in Mio
Source: IHS June 2017
2014 2016 2018 2020 2022 2024
Japan/Corea South East Asia China
Middle East/Africa Europe Southamerica
The current discussions concerning pollutant emissions
and the resulting chances in the power train have
tremendous consequences concerning the usage of
aluminum. Several forecasts assume, that up to 7
per cent of all sold light vehicles will be based on
the hybrid technology in 2025. For the year 2025 a
production volume of between 108 and 110 million
light vehicles will be expected. This will result in a
sales volume of between 7.5 to 7.75 million hybrid
cars. Therefore the total number of manufactured
cars with a combustion engine will stay on a stable
level. Other forecasts are less optimistic concerning
the sales figures of hybrid cars.
Besides the hybrid sales we have to add the production
of pure e-vehicles with a battery solution. New
forecasts expect strong declining production costs for
batteries, therefore battery e-vehicles will become cheaper
and the price difference to gasoline or diesel driven
cars could be reduced. Some estimations calculate,
that as a result of an increased number of e-vehicle sales
worldwide a quarter of all cars could be e-vehicles
in 2040. But by 2025 a share of in maximum 5 per cent
seems more realistic (see slide 3).
E-Mobility Forecast: Battery solutions achieve 2040 up to 25 %
Mio. solded automobile per year %-share solded new cars/year
2015 2020 2025 2030 2035 2040
ICE + HEV BEV PHEV Electric cars in % of new cars
Comment: PHEV = Plug-In hybrid electric vehicle; BEV = Battery electric vehicle; ICE = Internal combustion engine; HEV = Hybrid electric vehicle
Source: Bloomberg; IKB Research
In e-vehicles the higher weight of the battery has the
consequence, that weight reductions elsewhere in the
automobile become necessary. This will induce a rising
number of lightweight solutions in car manufacturing
and will have an increasing usage of aluminum and to
a certain extent magnesium in the automobile as a result.
Within the different steel grades we see a general
trend to move away from conventional steel towards
high tensile steel grades.
Even the production of medium and heavy vehicles
gains from a stronger emission regulation in the European
Union and in the United States of America. These
regulations induce a lower fuel consumption, which
stimulates investments in a newer generation of trucks
and other commercial vehicles. For 2024 a worldwide
production of above 3.6 million commercial vehicles
will be expected (see slide 4).
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Production of medium and heavy vehicles in 1.000/pcs
Source: IHS July 2017
2016 2018 2020 2022 2024
Japan/Corea South East Asia China
Middle East/Africa Europe Southamerica
By now, in the commercial vehicles segment (trucks,
busses and other commercial vehicles) diesel fuel dominates
all other types of fuel. Within the next 25 years
different types of electrical drives and other fuel types
will gain market shares mainly in the small transporter
segment and with busses. In the segment of heavy
duty trucks we see bigger chances for LNG (liquified
natural gas). But even if we have a look at an optimistic
scenario for alternative drives: More than half of the
total fuel demand will be concentrated on diesel in the
segment of commercial vehicles.
In the manufacturing process of trucks we see impulses
for a higher demand for aluminum, too. Examples are
a higher usage of aluminum extrusion parts and in the
trailer and superstructures segment, there are additional
application fields for aluminum.
Aluminum foundry production with dynamic
A part of the higher usage of aluminum in the car manufacturing
process will lead to a rising aluminum foundry production.
In the year 2016, the global aluminum cast production
achieved a new record with around 18 million tons. Therefore
the long-term positive trend towards lightweight production
in the automotive industry has continued. While the
worldwide output of iron and steel cast has grown by 50 per
cent, the aluminum foundry production has risen by the factor
of two-and-a-half since 1999 (see slide 5).
Weltweite Produktion von Eisen- und Aluguss 1999-2017; 1999 = 100
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017p
Quellen: CAEF; Census; IKB-Berechnungen
The German domestic foundry market shows a nearly
similar development: While during the period under review
the output of iron, ductile iron and steel cast grew
by only a sixth part, the aluminum cast production expanded
by around 90 %.
Even in the future the worldwide growth in the aluminum
foundry production will continue. A higher output
of aluminum cast will be seen in all major regions in the
world, while the growth in iron and steel cast is regionally
Mainly China expanded its aluminum cast strongly:
In 2015, the 6-million-ton target was exceeded with a
total of 6.1 million tons. The Chinese output grew by
800,000 tons in 2016: This equaled the annual production
of Italy! In May 2018, during the annual congress
of the Chinese Foundry Association another increase of
400,000 tons was announced for 2017. As a result, the
7-million-ton level has fallen.
For Germany, we forecast another rise in aluminum
cast output: In 2025, an annual production volume of
1.4 million tons could be reached. If the growth of the
electro mobility is significantly stronger than expected,
the necessary volume of aluminum production is considerably
higher than this volume. The weight of the
battery, which exceeds very often 200 kg by relevant
powertrains, will have to be reduced in other parts of
the car, which gives an additional stimulus for aluminum
In addition to the car manufacturing industry some
other important customer industries will give positive
impacts on the further demand for aluminum. We see
a positive development for the construction sector in a
lot of regions in the world. Mainly the expected new
so called „Megacities“ (urban regions with more than
10 million inhabitants) will result in a jump in aluminum
For the aircraft building industry some more years of
strong growth will be seen: The order books of the two
leading manufacturers Boeing and Airbus as well as
of some producers of regional aircrafts are currently
well-filled. If we look at the material mix in the aircraft
manufacturing we see no shift towards carbon fibre
materials, more realistic is a move back to aluminum.
Despite the fears of a tougher worldwide trade war
between the US and the rest of the world we see an upturn
in the global mechanical engineering sector. As a
result of its excellent barrier characteristics, aluminum
will play a prominent role in the packaging industry
even in the future.
Only few new capacities of primary aluminum …
In the first half of 2018 the worldwide primary aluminum
production fall slightly below the level of the previous
year. For 2018, we forecast a global production
of around 64 million tons of primary aluminum. The
Chinese production was around 2 per cent below the
level of 2017. The main reasons were the closure of
aluminum plants during the weeks of congress of the
communist party and in addition new environmental
regulations. But we expect, that the lower volume will
be compensated by the end of the third quarter 2018.
In the other parts od Asia we see a strong rise in aluminum
production of nearly 16 %. The aluminum plants in
the countries of the Gulf region report higher volumes,
too. In Europe in total the production stabilizes, while
in North and Latin America the output has declined significantly.
The inventories of primary aluminum at the LME diminished
a little: They fluctuate at around 1.1 million tons.
The stocks at the SHFE decreased to 881,000 tons. In
the warehouse of the Comex only around 8,000 tons
are stored. But in total the market supply is on a satisfying
level. At the LME, the inventories of the aluminum
alloy equal only 13,500 tons.
In the long term we see a rising importance of aluminum.
Currently, the net-addition of new capacities
for primary aluminum is very limited. As a result, we
forecast only a very small extension of the production
possibilities during the next five years (see slide 6). For
2022 we forecast a worldwide production of primary
aluminum of 65.5 million tons, of which around 37 million
tons will be produced in China. At least another
10 million tons of primary aluminum will be generated
in other Asian countries including the countries of the
Gulf region. Especially the countries in the Gulf region
use very cheap natural gas to run the aluminum electrolysis.
Production of primary aluminium in 1.000 t
2002 2004 2006 2008 2010 2012 2014 2016 2018p 2020p 2022p
Oceania America Africa China Asia without China Europe
Source: Metallstatistik; World Aluminium; IKB Research
p = Prognosis
If we have a look at the European primary aluminum
production, we expect a slight extension in Western
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Europe, in Eastern Europe a further increase could be
We see some chances for a recovery of the primary
aluminum production in the Americas. But a higher
production in the US will not be the result of the new tariffs
of ten per cent on aluminum imports introduced by
president Trump: An increase in the domestic aluminum
production will come from a general improvement of
the automotive production and the aircraft manufacturing.
In 2017, the American aluminum production was
more than 35 per cent (in total around three million
tons) below the level of the year 2008. In the United
States of America the primary aluminum output declined
to 740,000 tons in 2017: Only a little bit more than
a quarter of the volume of the year 2008.
… but expansion of recycling aluminum will come
While the extension of the primary aluminum capacities
is limited an increase of the recycling aluminum production
is necessary. In contrast to the significant decline
in the primary aluminum output, the production volume
of recycling aluminum was relatively stable in the
USA (see slide 7). In addition, both neighboring countries
– with the same new tariffs on aluminum imports
like Europe – were able to hold their production level
of recycling aluminum during the last years. In the year
2009, the European producers had to accept a strong
fall in the recycling aluminum output as a result of the
global economic crisis: But they were back very quickly
on the pre-crisis-level in the year 2011.
During the last fifteen years the strongest growth rates
among the leading producers of recycling aluminum
were seen in China: But by now, the country has not
reached a similar dominant position in the secondary
aluminum production as in the primary aluminum market.
For the next few years we forecast a catch-up and
an expansion in the recycling aluminum production.
The acquisition of recycling know-how via the takeovers
of companies in the Western European environmental
sector and Asian subsidiaries, mechanical engineering
companies specialized in recycling technics
and the headhunting of managers with recycling skills
are first signs of this trend.
Even if we have seen a recovery in the recycling aluminum
output in Japan, the production is still twenty per
cent below the prior peak level of 2008.
Production of Recyclingaluminium 2016; Shares in %
For Europe we forecast a further expansion in the capacities
for recycling aluminum. The main reason for
the net-additions of capacities for recycling are the lower
energy costs in relation to those for the manufacturing
of primary aluminum. New capacities respectively
capacity extensions will be seen e.g. in Latin America,
South Africa and some other Asian countries.
Even if the current geopolitical and trade environment
shows several high risks for the global economic development,
IKB sees the medium- and long-term outlook
for aluminum very positive. During the next decade the
requirement for aluminum will go into the direction of
80 million tons.
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