Demand is the driving force of supply
Aluminum represents the second largest metals market in the world.
Growing demand for the lightweight metal is fuelled largely by the booming Chinese economy which already consumes a quarter of the world’s aluminium production. Analysts predict an annual growth rate of 7 to 14% in the Chinese automotive industry up to 2011, a 12% increase in construction expenditure in 2007 and a minimum of plus 16 million annual growth in urban population during the next 8 years. According to analysts these factors will combine to see China consume 36% of world’s aluminium production as early as 2010.
In addition, the EU is discussing the possibility of introducing stricter CO2 emission requirements for automobiles which will inevitably boost demand for aluminium. Aluminium is lighter than steel, so its wider use in the automotive industry will make cars much more efficient. A kilo of aluminium, used as a substitute for heavier metals in car industry, reduces gas consumption by 8.5 litres and produces 20 kg less CO2 emissions. A 10% reduction of car weight results in a 9% increase of fuel consumption efficiency.
Finally, rising prices for substitute metals, such as zinc and copper, stimulate a direct increase of demand for aluminium in the power, transportation and construction sectors in particular.
Demand is enormous, consumers are wealthy, profitability is evident: it seems a lot of companies should be rushing to enter the aluminium sector, yet, the situation is not as simple as it may seem. Only those who can establish and manage the full production cycle (from the extraction of raw materials, the production of alumina, and the reduction of aluminium) in a highly efficient way can become leaders in the aluminium industry.
Whoever owns resources owns the world
Resources of bauxites, the raw material for aluminium, are not widespread throughout the world. There are only seven bauxite-rich areas: Western and Central Africa (mostly, Guinea), South America (Brazil, Venezuela, Suriname), the Caribbean (Jamaica), Oceania and Southern Asia (Australia, India), China, the Mediterranean (Greece, Turkey) and the Urals (Russia). The main deposits of high-quality bauxites with high aluminium content (not less than 50%), are already divided by the main players. Other companies have to either buy alumina on the free-market and wholly depend on price movements or join forces with deposit owners.
The richest sources of bauxite belong to the United Company RUSAL (UC RUSAL), which was established in 2007 as a result of a merger between RUSAL, SUAL and the alumina assets of Glencore (3.3 bln m.t. of bauxites), and to the mining and metallurgical giants: Rio Tinto (3.29 bln. m.t.), and CVRD (2.73 bln. m.t.). Chalco of China comes fourth with its 1.92 bln. m.t. Alcoa and Alcan, which are among the three largest producers, control deposits worth 1.89 and 0.38 bln. m.t. respectively.
These same companies make up the ten largest manufacturers of alumina. Analysts estimate that Alcoa World Alumina and Chemicals (Alcoa’s alumina business, with 60% belonging to the American company and 40% to the Australian Alumina Limited) will produce 19% of the world’s total alumina production in 2007, UC RUSAL will produce slightly over 14%, Chalco will produce 12%, Alcan will produce 8%, Rio Tinto will produce 4% and CVRD 3%. BHP Billiton (2007 estimate is 6%) and Norwegian Hydro Aluminium (3%) are also among the leaders of alumina production.
The limited supply of raw materials is a factor behind the major consolidation trend of world aluminium industry. In 2007 the merger of RUSAL, SUAL and alumina assets of Glencore was completed. Rio Tinto proposed to take over Alcan, which, in turn, has already taken over the French aluminium manufacturer Pechiney in 2004. The US-based Alcoa is also named by the press as a potential merger and takeover participant. According to analysts, the Chinese aluminium industry is on the verge of changes: small manufacturers (amounting to more than a hundred in China), will either merger with each other, or join Chalco.
The Big Ten
Today the Big Ten aluminium manufacturers are:
United Company RUSAL is the leader of the world’s aluminium industry. Its products are exported to clients in 70 countries of the world. The Company incorporates bauxite and nepheline ore producers, manufacturers of alumina, aluminium, alloys, foil and packaginging materials, as well as power assets. The United Company holds 12.5% of the world’s aluminium market and 16% of the world’s alumina market, which allows the company to produce 3.9 mln m.t. of aluminium and 10.6 mln m.t. of alumina per annum. The company was established in March 2007, as a result of merger of RUSAL, SUAL and alumina assets of Glencore. UC RUSAL provides employment for 100,000 individuals and is operating in 17 countries on 5 continents.
Alcoa is one of the world’s leading manufacturers of primary aluminium, aluminium products and alumina. The company is involved in aerospace, automotive, packing and construction industries, as well as in the field of commercial transportation and engineering solutions. Alcoa has 129,000 employees in 44 countries of the world. In 2006 the company has produced 3.55 mln m.t. of primary aluminium. In Russia, Alcoa owns OJSC Samara Metallurgical Plant and OJSC Belaya Kalitva Metallurgical Industrial Amalgamation.
Àlcan is the Canadian aluminium manufacturer, which is over 100 years old. Today, the company is one of the leaders in the world’s aluminium industry, producing bauxites, alumina and aluminium. It is one of the three largest manufacturers of structural and packaging materials. Its production volume for primary aluminium in 2006 was 3.4 mln m.t. The company has 68,000 employees, including joint ventures. Alcan operates in 61 countries. In Russia, Alcan sells aluminium packaging materials, including products for the tobacco and cosmetics industries. It has representative offices in Moscow and Leningrad regions. At present, Alcan’s shareholders are studying a takeover proposal from the Australian-based Rio Tinto. If the deal is approved, the new company will become the absolute leader in terms of volume.
Chalco or Aluminium Corporation of China Limited is the largest manufacturer of aluminium and the only manufacturer of alumina in China. The company was founded in 2001 during the privatization of Chinese aluminium industry. In 2006 Chalco has produced 9.2 mln m.t. of alumina and 1.6 mln. m.t. of aluminium. All the assets of the company 4 plants, manufacturing both alumina and aluminium, one purely aluminium and two purely alumina plants, plus, an R&D Institute are located in China. Chalco does not have representation in Russia.
Hydro Aluminium is one of the two main business units of Norsk Hydro. Its second line of business is the oil and power industry. Hydro Aluminium is a downstream-integrated company with major alumina assets in Brazil and Jamaica, and aluminium smelters in Australia, Canada, Germany, Norway and Slovakia. The company has also announced its intention to build an aluminium smelter in Russia. Hydro Aluminium has 26,000 employees. In 2006 they have produced 1.8 mln m.t. of primary aluminium. At present, Hydro has offices in Moscow and Saint Petersburg.
BHP Billiton is the largest mining company in the world. The company acquired its present configuration in 2001, when it was created through the merger of the Australian Broken Hill Proprietary Company (BHP) and the British listed Billiton. Aluminium production is just one of ten businesses run by this Australian giant. As of today, overall production capacities of the company are over 1 mln m.t. of aluminium and over 4 mln m.t. of alumina per annum. BHP Billiton owns industrial sites in South Africa, Australia and South America. BHP Billiton does not have a representation in Russia.
Dubal or Dubai Aluminium is the largest aluminium manufacturer in the UAE. Starting in 1979 with a single pot line, producing only 136,000 m.t.p.a., Dubal today is one of the leaders of world aluminium industry, having production capacity of 900,000 m.t.p.a. of aluminium. 3240 people work for the company. The main markets for Dubal are: the Far East, Europe, Asia, the Middle East, the Mediterranean and North America. Dubal does not have representation in Russia.
Rio Tinto Group is another diversified mining company among the top ten aluminium producers in the world. It got its present configuration in 1997 after a series of takeovers and mergers. Aluminium production is one of the group’s seven lines of business. Rio Tinto Aluminium mines bauxites, produces alumina and primary aluminium, accounting for 26% of all aluminium, manufactured in Australia. The head-office of its aluminium operation is located in Brisbane, Australia, with representations in New Zealand, Australia and Great Britain. Rio Tinto Aluminium employs 5,000 people. There is no representative office in Russia yet.
Aluminium Bahrain B.S.C. or Alba is one of the largest aluminium smelters in the world. Since it was built in 1971 in the Knaff District of Bahrain, the smelter has increased its production capacity from 144K to 850K m.t.p.a. of aluminium, thus entering the Big Ten aluminium manufacturers and becoming the world’s third largest aluminium smelter. In 2006 Alba has produced 2.3% of the world’s aluminium.
Century Aluminum was founded by the Swiss company Glencore International, as a holding for its aluminium assets, in 1995. A year later Glencore completed an IPO of Century Aluminium stock, leaving a 30% package. The company employs 1,750 people. It controls or holds shares of several aluminium smelters in the US and Iceland, as well as a number of mining assets in Jamaica and in the US. Last year, Century Aluminium produced 660K m.t. of aluminium, which accounts for 1.9% of the world’s production. Its head-office is located in Monterey, CA. Century Aluminium has no representation in Russia.
The Power of Success
The reduction of aluminium from alumina by means of electrolysis is a power-consuming process, hence most vertically integrated companies are generating their own power. Accessibility and the price of power drives the second trend of aluminium industry development. Aluminium production leaves industrially developed countries and shifts to countries that are reach in resources and able to produce their own cheap energy.
Thus, in the last 18 months, growing power rates, lack of local resources and a tightening of ecological regulations have resulted in the shut-down or closing of European production facilities manufacturing a total of 354,000 m.t.p.a of aluminium. In the next year and a half, 3 more plants will be closed in Europe, with a total production capacity of 206,000 m.t.p.a.
At the same time, countries like India, Iceland, China, Russia, and UAE enjoy growth and development of aluminium production. Analysts believe that in the next four years each of these countries will increase overall production capacity by at least 500K m.t.p.a. China will be the absolute champion, adding a total of 7.6 mln. m.t.p.a. of aluminium production capacities by 2011.
Aluminium has been used for for just over 150 years, yet it has already gone from being purely decorative, used by jewelers alone, to being a material which allows us to travel faster, live more comfortably, use all the advantages of progress and study the worlds around us. The corporate history of aluminium production is an interesting story. Companies which were considered world leaders merely five years ago have become divisions of larger competitors, while plants that started as pilot shops for manufacturing aluminium have become the largest manufacturers of the «flying metal». And this is just the beginning!