Aluminum has been classified as a critical mineral by both the United States and the European Union. From the precarious state of primary metal production on both sides of the Atlantic, one would not be aware of this fact. High energy costs, especially in Europe, have led to the closure or reduction of production in several smelters, resulting in operating rates dropping to their lowest levels of this century.
As early as 2020, the World Bank identified aluminum as a “high-impact” and “cross-cutting” metal in all existing and potential green energy technologies. However, aluminum has not even been included in the list of metals covered by the European Union’s Critical Raw Materials legislation (CRMA), which sets targets for domestic production and import dependence.
The United States attempted to support domestic producers through import tariffs, but with minimal effectiveness. Even the generous subsidies provided to domestic metal production under the Inflation Reduction Act would not yield results if the green energy paradox of aluminum is not addressed.
Production decline
Since 2017, the original aluminum production in Western Europe has been declining, but the invasion of Ukraine by Russia and the resulting surge in energy prices have accelerated this downward trend. According to data from the International Aluminum Institute (IAI), production decreased by 12.5% last year and has continued to decline this year, with an average annual production of 2.7 million tons in the first four months of 2023 in the region. The operating capacity of Western Europe exceeded 4.5 million tons 15 years ago. According to the U.S. Geological Survey (USGS), the production of primary metals in the United States has been declining since 2019. Two out of the seven domestic smelters have reduced production completely, while the production capacity of three smelters has decreased. The USGS estimates that by the end of last year, domestic production accounted for only 52% of the capacity, and the import reliance increased from 41% in 2021 to 54%. The decline in production in the West contrasts sharply with the rise of China. China currently accounts for about 58% of global aluminum production, and this dominant position has led to a large-scale return of other key minerals such as lithium and rare earths. While the U.S. market can rely on Canada for the supply of primary aluminum, Europe traditionally relies on Russia, which is now a serious long-term partner with significant issues.
Green demand
According to IAI’s data, even considering greater recycling efforts, the world still needs 25 million tons of additional primary production capacity to achieve its emission reduction goals。Aluminum is directly used in all new energy technologies, particularly in solar power generation, where it accounts for 85% of photovoltaic (PV) components, connecting PV panels together in the form of frames.
The future demand for metals is also related to the accelerated introduction of electric vehicles. Automakers are using more aluminum to reduce the weight of vehicles and improve battery efficiency.
In a report commissioned by the European Aluminum Association, automotive consultancy Ducker Carlisle stated that aluminum usage in European cars increased from 174 kilograms in 2019 to 205 kilograms in 2022, representing an 18% growth
The report predicts that this trend will continue, with the average aluminum content projected to increase from 205 kilograms in 2022 to 237 kilograms in 2026, and further rise to 256 kilograms per vehicle by 2030.
The future of aluminum smelters in the West, especially in Europe and the United States, should be promising, particularly as governments channel funds into green acceleration pathways.
Widening gap between supply and demand
The problem is that too much of the government’s largesse is going to the demand side of the aluminum, and not enough is being spent on supply.
The Reduce Inflation Act, the CHIPS Act and the Infrastructure Investment and Jobs Act will inject $1.25 trillion into the green energy industry, according to the Center for Strategic Industrial Metals, a US think tank. (Analysis of Alcoa Legislation, May 2023)
Since aluminum is used in all green energy applications from solar to wind to electric vehicles, the combined effect is to accelerate demand.
However, only $126 billion is available on the aluminum supply side in the form of manufacturing credits and domestic processing subsidies, according to SAFE. In addition, the report states that investment “depends on decarbonisation, with fierce competition for funding”
Be left behind
Carbon is at the heart of aluminum’s green energy paradox.
The metal is a key material in decarbonizing the entire economy, but it is also one of the highest-emitting industrial metals, especially those smelters powered by fossil fuels.
According to SAFE: “By setting the conditions for decarbonization for supply-side support while simultaneously increasing demand across multiple industries, the U.S. is caught in this cycle.”
In other words, simply funding smelters to reduce their direct emissions will not solve the problem unless it is accompanied by investments in green power supplies.
Emanuele Manigrassi, senior manager of regulatory affairs at Aluminum Europe, said the proposed Carbon Boundary Adjustment Mechanism (CBAM), which is complicating Europe’s carbon problem, would do “more harm than good”.
“We expect CBAM to only increase the cost of producing and consuming aluminum in Europe without reducing global emissions,” Manigrasi wrote in a May 17 blog post.
Energy, especially green energy, is key to maintaining the primary aluminum production base in Europe and the US.
SAFE has warned that current U.S. policy ignores aluminum’s green energy paradox and “risks leaving its own aluminum behind”.
Industries in both the U.S. and Europe need policymakers to take a more holistic approach.
The EU could start by including aluminum in CRMA.
Europe’s primary aluminum industry is facing an existential crisis, Euroaluminium secretary general Paul Voss told a forum co-hosted with Eurometaux last month.
“If the political signal is that the material isn’t very important, of course, you can let it go in the wall,” he said.
But if Europe wants to keep producing primary aluminum, “then put us on that damn list.”