Alu_VZ_2020_Editorial

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Aluminium in 2020: Rising consumption in spite of
an economic slowdown
Dr. Heinz-Jürgen Büchner
IKB Deutsche Industriebank
Managing Director Industrials, Automotive & Services
In the course of the year until now, 2019 has been characterised
by geopolitical flashpoints and an economic
slowdown resulting from them in part.
World economy with weaker performance
For example, the Chinese economy grew by 6.2 % in the
2nd quarter of 2019 compared with the same period
in the previous year after the gross domestic product
(GDP) had still increased by 6.4 % in the 1st quarter.
Although the economic dynamism has thus diminished
slightly, a growth rate between 6.0 % and 6.5 % yoy
may still be assumed for the Chinese GDP in the whole
of 2019. This is based on that June data for the industrial
production and the retail trade which turned out to
be really strong and does not indicate any further slowdown
in the dynamism. Thus, China’s dynamism remains
solid and an important motor of the global economy.
A slowdown in economic activity is being shown for
the US economy too: For example, the GDP grew at an
annualised rate of just 2.1 % in the 2nd quarter of 2019
- after 3.2 % in the 1st quarter. Moreover, the number of
starts of construction work declined slightly in June
while the building permits dropped substantially by
more than 6 %. The US industrial production also stagnated
in June and thus fell short of the expectations.
In contrast, the positive development of the US retail
trade turnovers continued in June. For the whole year,
IKB is seeing a growth rate of around 2.6 %.
For the Euro zone, Eurostat confirmed the GDP growth
rate of 0.4 % qoq in the 1st quarter of 2019. Thus, the
currency area was once again able to expand somewhat
more strongly than in the previous quarters.
Amongst the large Euro countries, Spain is still the driving
force, followed by Germany and France. Italy’s
dynamism remained very subdued but it was at least
able to end the technical recession. All the Euro countries
raised their economic performances. The exception
was Latvia which, however, exhibited exceptionally
strong growth in the previous quarter. The dynamism
continues to be broadly based. For the Euro zone, IKB is
still assuming a GDP growth rate of 1.2 % in 2019.
In any case, quite a lot of major geopolitical risks will
exist for the next 18 months:
The probability of a hard Brexit has increased considerably
after the resignation of Prime Minister Theresa
May and the election of Boris Johnson as Prime Minister.
Increasing uncertainty is already being reflected in
the British mood indicators which have deteriorated
since the summer of 2018. Moreover, GDP shrinkage
in the 2nd quarter of 2019 is already being foreseen
because of anticipatory effects in expectation of Brexit.
A hard Brexit will lead to a distinct decrease in the
growth in the EU countries too.
As a flashpoint, the Middle East continues to have impacts.
The wars in Syria and Yemen do not seem to be
coming to an end very quickly. A democratisation process
in Saudi Arabia is getting off the ground only extremely
slowly. However, it is primarily President Trump’s
termination of the atomic treaty with Iran which is de-
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veloping into a geopolitical powder keg. Iran’s threat to
close the Strait of Hormuz through which a substantial
proportion of the crude oil exports from the Gulf region
is shipped may lead to an explosion. After attacks on
several tankers, the seizure of ships and the shootingdown
of drones, the uncertainty has increased enormously.
Of course, this is causing high volatility in the
crude oil prices (see Fig. 1).
Brent Blend oil price / in US-D per barrel
140
120
100
80
60
40
20
0
2013 2014 2015 2016 2017 2018 2019
Source: Bloomberg
Figure 1
After the global crude oil demand rose by 1.4 mbd (= million
barrels per day) in 2018, a need rising to 100 mbd is
being seen for 2019. Since the increase in the crude oil
production outside OPEC is turning out to be stronger
than the rise in global consumption, this is reducing the
need for the OPEC production by 0.9 mbd. The current
production quantity corresponds to this need. An escalation
in the Gulf region as a consequence of the military
manoeuvres would lead to temporary bottlenecks in
supply. For the time being, IKB is nevertheless assuming
a crude oil price between US-D 60 and US-D 70 per
barrel of Brent - with a high potential for a rise in the
event of any military conflagrations.
However, impacts are resulting from the trade wars in
particular. On the part of the US government, the threat
of punitive tariffs and further sanctions is increasingly
being used as a means of domestic political profiling.
Even treaties concluded in the recent past (see Mexico)
are no longer reliable. Moreover, the conflict with China
is increasingly having impacts on the most important
partner countries. Thus, some market observers are asking
themselves whether treaties and agreements with
the USA make any sense whatsoever if a tweet makes
them obsolete once again at short notice.
Important buyer markets are placing their faith
in lightweight construction
The expectations in relation to the production of light
vehicles (piece weight: up to 2.8 t) are assuming an annual
output between nearly 100 million and up to 110
million units in the next decade. In this respect, quantities
of 105 million and more should be achieved from
2025. Only a sales volume 2 - 3 % below the level in the
previous year is emerging for 2019.
In relation to the total production, there are just small
differences between the average annual production
and the resulting stock of the motor vehicle fleet at the
end of the forecast period. The majority of the growth
is taking place outside Europe and the USA. China
should exceed the sound barrier of 30 million produced
light vehicles in 2022 at the latest.
While various consulting companies, industrial associations
and forecasting firms have made largely
identical basic estimations of the development of the
production and the sales, there are greater divergences
with regard to the estimation of the advance of an alternative
drive technology to the combustion engine. In
relation to the drive, IKB is initially seeing a sharp rise
in the significance of hybrid drive forms while pure battery
solutions will only reach any notable quantities after
2025. However, in addition to the battery-operated
drive, research activities are increasingly being directed
at synthetic fuels as well as at drive forms such as
the fuel cell. The stock of e-vehicles in the basic forecast
is estimated at up to 15 % of the worldwide stock
in 2030. In an optimistic forecast, 25 - 30 % is possible
(see Fig. 2).
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Strong growth in the worldwide fleet stock of electric vehicles
Forecast until 2030; in million
140
120
100
80
60
40
20
0
2017 2020 2025 2030
Trucks - PHEV Buses - BEV LCVs - PHEV
LCVs - BEV PLDVs - PHEV PLDVs - BEV
Remark: PLDV = Passenger light duty vehicle; LCV = light commerical vehicle; BEV = battery electric vehicle; PHEV = plug-in hybrid electric vehicle
Sources: International Energy Agency
Figure 2
However, one necessary prerequisite is that the prices
of batteries will continue to drop sharply. Only then will
electric vehicles constitute an economically viable option
in most countries in the second half of the 2020s.
In addition, it is still uncertain whether the necessary
quantities of lithium and cobalt will be available to a
sufficient extent.
The use of an electric battery in a car makes the total
weight rise even if the engine block and a few corresponding
parts are dispensed with. However, increased
lightweight construction is induced in order to counteract
this and thus leads to a further rise in the utilisation
of aluminium in cars.
However, unchanged stimuli also continue to come from
the construction sector. Not only does precisely housebuilding
in important conurbations use aluminium in the
facade segment but the utilisation of aluminium is also
en vogue in the interior equipment. In the long term too,
the great design-related diversity which can be achieved,
for example, by anodised surfaces will be a factor
in favour of the increased use of aluminium.
In mechanical engineering, aluminium is being utilised
increasingly also in certain segments such as robotics
or the hand-guided tools; even if mechanical engineering
in Germany should stagnate in 2019 or even register
a slight dip: In the long term, the signs are indicating
further growth, not least because of the fact that German
manufacturers are global market and technology
leaders in many sectors.
Further processing of aluminium with a positive
outlook
The most important further processing segments will
still register considerable rates of increase in the next
few years too:
The global production of cast aluminium rose from
8 million t in 2000 to 19 million t in 2017 (see Fig. 3).
Production of cast aluminium on a stable growth course
Production of cast aluminium in million t
20
18
16
14
12
10
8
6
4
2
0
Sources: CAEF; World Census; IKB Research
Figure 3
Rest of the world
China
China’s production of cast aluminium was just 0.8 million
t in 2000 but the Chinese aluminium foundries
set a new record with 7.3 million t of cast products in
2017: Within 17 years, the production of their aluminium
foundries rose by a factor of nine. In the rest of
the world, the production of cast aluminium increased
from 7.2 million t to over 12 million t in 2017. In contrast,
the global growth in the production of cast iron could
mainly be attributed to a rise in the Chinese production
with a stable production level in the rest of the world. In
contrast, the production of cast aluminium rose in all the
important regions of the world but at diverging growth
rates. For example, the production levels in the USA,
France and Russia stabilised between 2000 and 2017.
In contrast, Japan and Italy registered growth rates of
around 20 % in the same period and the German pro-
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duction even expanded by around 75 %. IKB is seeing
a rise in the worldwide production of cast aluminium to
over 20 million t per year by 2025 and around 8 million
t of this will come from China. The European production
of cast materials (including Turkey) should amount
to around 5.5 million t. The German aluminium casters
will contribute approx. 1.4 million t to this.
A sharp increase in the production of extruded materials
is to be expected precisely in Europe too. While the
consumption of extrusion products in Europe was just
2.6 million t in the post-crisis year 2010, it was already
estimated to be 3.3 million t in 2017 (see Fig. 4).
Consumption of extruded products in Europe; in million t
4,0
3,5
3,0
2,5
2,0
1,5
1,0
0,5
0,0
2010 2011 2012 2013 2014 2015 2016 2017 2018g 2019g 2020g
Sources: IKB Research, European Aluminium Association (25.05.2018)
Figure 4
g. = estimated
By 2020, the need in Europe should rise up to 3.5 million
t. This will be borne not only by the construction
industry as the main buyer segment but also, above all,
by the vehicle industry (cars and commercial vehicles)
as well as, to an increasing extent, by mechanical engineering
and the aviation industry too. Since Europe is
still a net importer of extruded parts, there is certainly
the possibility of expanding the existing production locations
or extending the capacity by modernising already
existing presses.
Positive future chances can be seen in the foil segment
too. Aluminium foils for the food industry will profit
from several trends in the future. On the one hand, the
average household size will drop since, in particular,
the proportion of single households will rise. However,
this also implies smaller packaging sizes and thus a rising
need for aluminium packaging. On the other hand,
plastic packaging has come under very strong regulation
and prohibition pressure. Because of the good barrier
properties of aluminium foil, it could profit from this
as a substitute.
Rising consumption of aluminium to be expected
Although the worldwide increase in the demand for aluminium
in 2019 should be just approx. 1.5 %, a further
rise in the demand for aluminium may be assumed in the
long term.
The trend towards e-mobility is becoming a growth driver.
In 2025, we are seeing a total consumption of aluminium
of 76 million t (see Fig. 5).
e-mobility is driving the demand; world
consumption of aluminium; in 1,000 t
80.000
70.000
60.000
50.000
40.000
30.000
20.000
10.000
0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018p
2019p
2020p
2021p
2022p
2025p
Oceania America Africa China Asia without China Europe
Sources: Metallstatistik; IKB Research p = forecast
Figure 5
In this respect, the average utilisation of aluminium in
cars should rise up to as much as 200 kg. The total demand
for aluminium in cars will be borne, above all, by
structural components and the trend towards aluminium
bodies. As a rule, the housings of electric batteries
should also be fabricated from aluminium.
China will continue to keep its dominant role in the global
consumption of aluminium, possibly even to consolidate
it slightly. However, we are also seeing a strong
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catching-up process, above all in other Asian threshold
countries (India, Indonesia, Vietnam etc.). In addition,
IKB is seeing a recovery in North America. Primarily in
aircraft construction, the utilisation of aluminium should
rise once again at the expense of composite materials.
Similarly, the utilisation of aluminium in Europe is continuing
to increase. Here, it is primarily Russia and
Ukraine which have a great need to catch up after
ending the civil-war-like confrontations. For Turkey
(one of the most important production locations of
aluminium wheel rims today), the end of the conflict
in Syria could result in further stimulation. If the country
is reconstructed, Turkey would be able to supply,
for example, extruded parts for near-construction applications.
Only slight increase in construction with
primary aluminium
In the last few years, the worldwide rise in the production
of primary aluminium has primarily been
caused by new capacities in Asia. Not only does China
now account for half of the global production but
the other Asian states have also caught up recently
(see Fig. 6).
In contrast, the increase in construction in the Gulf
states (United Arab Emirates, Qatar and Bahrain)
seems to be coming to an end by and large.
China and the rest of Asia with growth;
production of primary aluminium; in 1,000 t
70.000
60.000
50.000
40.000
30.000
20.000
10.000
0
2002 2004 2006 2008 2010 2012 2014 2016 2018p 2020p 2022p
Oceania America Africa China Asia without China Europe
Sources: Metallstatistik; World Aluminium; IKB Research
Figure 6
p = forecast
Although these states have a comparative advantage
for the production of primary aluminium (i.e. the favourable
process energy because gas which would otherwise
be flared is used for production) and the location
between the large consumption regions in Asia and
Western Europe is logistically favourable, the geopolitical
conflict situations are currently having impacts on
new investment decisions.
In Western Europe, the prospects of a continuation
of the sharp rise in energy costs are having impacts
on the setting-up of new capacities for the electrolysis
of aluminium. Iceland where the use of hydroelectric
and geothermal power permits the favourable
production of primary aluminium constitutes one
exception.
Although the US production of primary aluminium has
recovered slightly in the first half of 2019, it is still very
far away from earlier production levels in spite of
Trump’s punitive tariffs. Until now, the tariffs on aluminium
imports have been passed on to the end consumer
more or less completely.
All in all, we are therefore seeing only a slight rise in the
production of primary aluminium up to nearly 66 million
t until 2022. However, this then implies a continuation
of the rise in the production of recycled aluminium
which can be carried out in Europe at favourable cost
also due to the fact that just 5 % of the original input
of primary energy is necessary for production. In any
case, China is also investing in expanding its recycled
aluminium industry.
Conclusion
All in all, the global aluminium industry continues to
have good growth chances which are being borne by
the most important buyer markets. The investments in
capacities for recycled aluminium should increase in
the medium and long terms.
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