Column: Aluminium is the West's critical minerals blind spot

LONDON, May 23 (Reuters) - Aluminium is classified as a critical mineral by both the United States and the European Union.

You wouldn't know it from the perilous state of primary metal production on both sides of the Atlantic.

High energy costs, particularly in Europe, have caused multiple smelters to close or curtail output with the result that run-rates are the lowest this century.

Back in 2020 the World Bank identified aluminium as a "high-impact" and "cross-cutting" metal in all existing and potential green energy technologies.

Yet aluminium hasn't even made it onto the list of metals covered by the EU's Critical Raw Materials Act (CRMA), which will set targets for both domestic production and import dependency.

The United States has tried via import tariffs to support its domestic producers but with little lasting success.

Even the Inflation Reduction Act with its generous subsidies for domestically-sourced metal is unlikely to work without addressing aluminium's green energy paradox.

Western European primary aluminium production has been sliding since 2017 but Russia's invasion of Ukraine and the resulting spike in energy prices have accelerated the downtrend.

Output fell by 12.5% last year and has slipped further this year with the region's annualised production averaging 2.7 million tonnes in the first four months of 2023, according to the International Aluminium Institute (IAI). West European run-rates exceeded 4.5 million tonnes fifteen years ago.

U.S. primary metal production has been falling since 2019 with two out of seven domestic smelters fully curtailed and three operating at reduced capacity, according to the United States Geological Survey (USGS).

The USGS estimates domestic production was running at just 52% of capacity at the end of last year with import dependency growing to 54% from 41% in 2021.

The decline in Western production contrasts with the rise of China, which now accounts for around 58% of global production, the sort of dominance that has triggered major re-shoring efforts in other critical minerals such as lithium and rare earths.

While the U.S. market can lean on Canada for primary aluminium supply, Europe has traditionally relied on Russia, now a highly problematic long-term partner.

Even allowing for greater recycling, the world will need another 25 million tonnes of primary production capacity if it is to meet its emissions reduction goals, according to the IAI.

Aluminium is used directly in all new energy technology, particularly in solar power, where it accounts for 85% of photovoltaic (PV) components in the form of the frames that hold the PV panels together.

The metal's future demand profile is also tied to the accelerating roll-out of electric vehicles. Auto-makers are using more aluminium to light-weight their cars to get greater efficiency out of batteries.

The amount of aluminium used in European cars increased by 18% from 174kg in 2019 to 205kg in 2022, according to automotive consultancy Ducker Carlisle in a report commissioned by European Aluminium.

The report predicts this trend will continue, with the average aluminium content projected to increase from 205kg in 2022 to 237kg by 2026 and 256kg per vehicle by 2030.

The future should be bright for the West's beleaguered aluminium smelters, particularly as Europe and the United States channel government funding down green accelerator paths.

The problem, however, is that too much of that government largesse is going to aluminium's demand side and not enough to supply.

The Inflation Reduction Act, the CHIPS Act and the Infrastructure Investment and Jobs Act will channel $1.25 trillion to green energy sectors, according to U.S. think-tank SAFE's Center for Strategic Industrial Metals. ("Legislative Analysis for the U.S. Aluminum Industry", May 2023)

Since all green energy applications from solar to wind to electric vehicles use aluminium, the combined effect is to accelerate demand.

However, the amount of funding available to aluminium's supply side in the form of manufacturing credits and grants for domestic processing comes in at just $126 billion, according to SAFE. Moreover, investment is "contingent on decarbonization and funding is highly competitive," it notes.

Carbon is at the heart of aluminium's green energy paradox.

The metal is both a critical material for enabling economy-wide decarbonization but at the same is one of the highest emitting industrial metals, particularly those smelters powered by fossil fuels.

"By setting the decarbonization conditionality for supply-side support and simultaneously increasing demand across multiple sectors, the United States entraps itself in this cycle," SAFE contends.

In other words, simply providing funds for smelters to reduce their direct emissions won't solve the problem unless there is simultaneous investment in greening their power supply.

The carbon problem is compounded in Europe by the proposed Carbon Border Adjustment Mechanism (CBAM), which "will do more harm than good", according to Emanuele Manigrassi, European Aluminium's Senior Manager of Regulatory Affairs.

"We expect the CBAM to only increase the costs of production and consumption of aluminium in Europe, with no reduction in global emissions," Manigrassi wrote in a May 17 blog.

Energy, particularly green energy, holds the key to preserving a primary aluminium production base in both Europe and the United States.

U.S. policy in its current form "threatens to leave its own aluminium behind" by neglecting to recognise the metal's green power paradox, SAFE warns.

Both U.S. and European sectors need a more holistic approach from policy makers.

The EU could start by including aluminium in the CRMA.

Europe's primary aluminium sector is facing an existential crisis, according to Europe Aluminium's general secretary Paul Voss, speaking at a forum jointly hosted with Eurometaux last month.

"If the political signal is this material isn't very important, of course you could just let it go to the wall," he said.

But if Europe wants to stay in the business of making primary aluminium, "just put us on the damn list."

The opinions expressed here are those of the author, a columnist for Reuters.

Our Standards: The Thomson Reuters Trust Principles.

Thomson Reuters

Senior metals columnist who previously covered industrial metals markets for Metals Week and was EMEA commodities editor at Knight-Ridder (subsequently Bridge). Started up Metals Insider in 2003 and sold it to Thomson Reuters in 2008, he is author of ‘Siberian Dreams’ (2006) about the Russian Arctic.

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