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In my view the outlook for the aluminium industry will be very much characterised by a saying of the great New York Yankees baseball player Yogi Berra, and that is "the future ain't what it used to be".
In the aerospace and the aviation industry, from the Wright Brothers to the Airbus A380, the consumption of aluminium in growing. In construction aluminium competes well with other materials, particularly in building design, and in functional performance in building materials. Its light weight and corrosion resistance makes it clearly the preferred material for many construction applications.
Demand for aluminium continues to grow strongly on a global basis. China’s phenomenal growth in domestic consumption is the predominant driver of this stronger global growth, it's up more than 30 per cent consumption on 2006 levels. In North America the demand for metal is flat, and this reflects the significant decline in the housing market there and a very soft automotive market; however in Europe demand growth is solid and with other developing economies, also growing strongly.
A doubling of global aluminium consumption by 2020 will come from growth in developing economies as well as the large western world markets of North America and Western Europe. However the largest growth is forecast to come from the significant growth in China, which is generating one of the biggest resource booms in history.
The rapid industralisation underway in many developing countries is still in its infancy. GDP and industrial production growth data in these economies make it reasonable to expect that consumption will continue to grow strongly in the foreseeable future, however the supply side response required means that both smelting and refining capacity will need to grow by approximately three times the rate of the past 20 years.
We believe that the supply chain is likely to remain stretched for many years to come and industry cost pressures will also support higher long term prices.
Worldwide new investment in smelting capacity outside of China, is being targeted at locations with stranded power, and oriented to low CO2 emissions energy sources, hydro and gas preferentially.
Higher energy costs are resulting in higher production costs for refineries and also power for aluminium smelters where energy demand is roughly 30 per cent of the direct smelting costs. Higher raw materials such as bauxite, increasing energy prices, currency appreciation, construction cost escalation, supply chain constraints, high cost of marginal production capacity.
It’s clear that China has fueled one of the biggest resource booms in history and supply is struggling to respond, new Chinese refining and smelting capacity is in fact being built at lower construction costs than we see in the Western world, however this new capacity does have higher conversion costs and higher energy input prices and we’d expect that other raw material and labour costs are also likely to increase over time.
It’s these dynamics that continue to underpin the trend for industry consolidation. Higher values for assets with long life, high quality bauxite reserves and access for long term energy supply and particularly those with a sustainable low cost position on the cost curve.
The industry must increase capacity at a rate three times the rate achieved over the past 20 years. Smelting capacity is moving from the US and Europe to the Middle East, to Russia and to China. Industry consolidation is being driven by existing producers seeking to secure access to quality bauxite, improved cost position and contracted low cost energy.
So the aluminium industry fundamentals are strong. Aluminium is the second largest metal trader by value on the LME, consumption is projected to double from 2005 levels to 2020.
In the aerospace and the aviation industry, from the Wright Brothers to the Airbus A380, the consumption of aluminium in growing. In construction aluminium competes well with other materials, particularly in building design, and in functional performance in building materials. Its light weight and corrosion resistance makes it clearly the preferred material for many construction applications.
Demand for aluminium continues to grow strongly on a global basis. China’s phenomenal growth in domestic consumption is the predominant driver of this stronger global growth, it's up more than 30 per cent consumption on 2006 levels. In North America the demand for metal is flat, and this reflects the significant decline in the housing market there and a very soft automotive market; however in Europe demand growth is solid and with other developing economies, also growing strongly.
A doubling of global aluminium consumption by 2020 will come from growth in developing economies as well as the large western world markets of North America and Western Europe. However the largest growth is forecast to come from the significant growth in China, which is generating one of the biggest resource booms in history.
The rapid industralisation underway in many developing countries is still in its infancy. GDP and industrial production growth data in these economies make it reasonable to expect that consumption will continue to grow strongly in the foreseeable future, however the supply side response required means that both smelting and refining capacity will need to grow by approximately three times the rate of the past 20 years.
We believe that the supply chain is likely to remain stretched for many years to come and industry cost pressures will also support higher long term prices.
Worldwide new investment in smelting capacity outside of China, is being targeted at locations with stranded power, and oriented to low CO2 emissions energy sources, hydro and gas preferentially.
Higher energy costs are resulting in higher production costs for refineries and also power for aluminium smelters where energy demand is roughly 30 per cent of the direct smelting costs. Higher raw materials such as bauxite, increasing energy prices, currency appreciation, construction cost escalation, supply chain constraints, high cost of marginal production capacity.
It’s clear that China has fueled one of the biggest resource booms in history and supply is struggling to respond, new Chinese refining and smelting capacity is in fact being built at lower construction costs than we see in the Western world, however this new capacity does have higher conversion costs and higher energy input prices and we’d expect that other raw material and labour costs are also likely to increase over time.
It’s these dynamics that continue to underpin the trend for industry consolidation. Higher values for assets with long life, high quality bauxite reserves and access for long term energy supply and particularly those with a sustainable low cost position on the cost curve.
The industry must increase capacity at a rate three times the rate achieved over the past 20 years. Smelting capacity is moving from the US and Europe to the Middle East, to Russia and to China. Industry consolidation is being driven by existing producers seeking to secure access to quality bauxite, improved cost position and contracted low cost energy.
So the aluminium industry fundamentals are strong. Aluminium is the second largest metal trader by value on the LME, consumption is projected to double from 2005 levels to 2020.
