Government largesse goes to demand, supply suffers setbacks Critical Minerals Alliances 2023 - September 12, 2023
Aluminum has been classified as critical by the United States, European Union, Canada, and even China. At first glance, one may wonder how such a ubiquitous metal could possibly be critical. The answer is simply that aluminum is so widely used that supply, if endangered, could devastate an economy.
In 2020, the World Bank identified aluminum as a "high-impact" and "cross-cutting" metal in all existing and potential green technologies.
In spite of this, due to high energy costs, particularly in Europe, smelters have been closed or forced to curtail output resulting in the lowest run-rate of aluminum in a century.
Further still, this projected decline did not result in aluminum making it onto the EU's Critical Raw Materials Act (CRMA), legislation that was announced by President Ursula von der Leyen during her 2022 State of the Union speech, where she called to address the EU's dependency on imported critical raw materials by diversifying and securing a domestic and sustainable supply of critical raw materials.
"This is why today I am announcing a European Critical Raw Materials Act. We know this approach can work," said von der Leyen during her address. "Five years ago, Europe launched the Battery Alliance. And soon, two third of the batteries we need will be produced in Europe. Last year I announced the European Chips Act. And the first chips gigafactory will break ground in the coming months. We now need to replicate this success."
The CRMA covers a subset of the EU's critical minerals list, with particular focus on battery metals like lithium, nickel, cobalt, and manganese and magnet inputs such as boron and rare earths.
Copper made this list as an enabler of all things electric, but aluminum and zinc did not, which is a striking omission given the recent shrinkage of European production capacity.
On the U.S. side of things, the government has tried via import tariffs to support domestic producers of aluminum but with little lasting success.
Even with the Inflation Reduction Act and its generous subsidies for this domestically-sourced metal, this has proved ineffective in addressing aluminum's green energy paradox.
According to the International Aluminium Institute, Western European primary aluminum production has been sliding since 2017, but Russia's invasion of Ukraine and the resulting spike in energy prices have accelerated the downtrend.
Falling by 12.5% in 2022 and slipping further so far this year, the region's annualized production averaged 2.7 million metric tons in the first four months of 2023. West European run rates exceeded 4.5 million metric tons just 15 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.
The USGS estimates domestic production was running at just 52% capacity at the end of 2022, with import dependency growing to 54% from 41% in 2021.
This decline in Western production contrasts with the rise of China, which now accounts for roughly 58% of global production of aluminum, a sort of dominance that has triggered major re-shoring efforts in other critical minerals such as lithium and rare earths and whose effects the West may feel with recent restrictions on gallium and germanium.
While the U.S. market can lean on Canada for primary aluminum supply, Europe has traditionally relied on Russia, now a highly problematic long-term partner.
Even factoring in greater recycling, the world will need another 25 million metric tons of primary production capacity if it expects to meet emissions reductions goals, according to the International Aluminium Institute.
Aluminum 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 frames that hold the PV panels together.
This lightweight metal's future demand profile is also tied to the accelerating roll-out of electric vehicles, with automakers using more aluminum to lighten their cars for greater energy efficiency out of the already critical batteries that are driving this whole frenzy in the first place.
In a report commissioned by European Aluminium, automotive consultancy Ducker Carlisle returned its findings: the amount of aluminum used in European cars increased by 18% from 174 kilograms (384 pounds) in 2019 to 205 kg (452 lb) in 2022.
The report further predicted this trend would continue, with the average aluminum content projected to increase from 205 kg in 2022 to 237 kg (522.5 lb) by 2026 and 256 kg (564 lb) by 2030.
While the future should be bright for the West's beleaguered aluminum smelters, particularly as Europe and the U.S. channel government funding down green accelerator paths, however, will supply meet that demand?
According to the Mineral Commodity Summaries 2023, last year, the supply chain for aluminum suffered setbacks at each stage. Fresh from the ground bauxite to alumina refining, then further processing into aluminum.
For Europe, the conflict between Russia and Ukraine led to the closure of a 1.7-million-ton-per-year alumina refinery in Ukraine, while high energy costs caused a 600,000 tpy alumina refinery in Romania to temporarily shutter.
Additionally, a 1.7 million tpy alumina refinery in Spain had to curtail its production by up to 60%.
Further along the chain, several primary aluminum smelters and aluminum product manufacturers throughout Europe announced shutdowns or partial curtailments.
Although production of aluminum continues to find bumps in the road, aluminum powerhouses are doing what they can to keep up the supply of aluminum needed for green technologies, but the support they receive is paling in comparison to demand.
A key problem surrounding the flow of materials for an electric-powered future is government largesse is bolstering aluminum's demand rather than supply.
The Inflation Reduction Act, the CHIPS Act, and the Infrastructure Investment and Jobs Act will channel US$1.25 trillion to green energy sectors, according to U.S. think-tank SAFE's Center for Strategic Industrial Metals.
Since all green energy applications, from solar to wind to EVs, need aluminum, the combined effect appears to accelerate demand.
However, the amount of funding available to aluminum's supply side in the form of manufacturing credits and grants for domestic processing comes in at slightly more than 10% of the demand side – US$126 billion, according to SAFE.
Carbon is at the heart of aluminum's green energy paradox. Both a critical material for enabling economy-wide decarbonization and one of the highest-emitting industrial metals, particularly from smelters powered by fossil fuels, many heavy industrial metals face similar issue.
The advent of superheating metal to change its composition broke Mankind away from rudimentary metallurgy; the next phase is concentrating that energy in a way that reduces emissions, and therein lies the problem.
"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 aluminum 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 recognize the metal's green power paradox, SAFE warns.
Many industry insiders believe that both U.S. and European sectors need a more holistic approach from policymakers-with a first step being to include aluminum in the CRMA.
Europe's primary aluminum sector is facing an existential crisis, according to Europe Aluminium's general secretary Paul Voss, speaking at a forum jointly hosted with Eurometaux in February.
"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 aluminum, "just put us on the damn list."
While incentives could certainly catalyze supply, companies like Rio Tinto and Sumitomo Corp. have taken it upon themselves to play an UNO reverse card – incentivize supply, through green aluminum.
If the top issue is emissions from heavy carbon-producing production, just change the entire process and remove emissions entirely or at least substantially.
Announced in mid-2021, Rio Tinto partnered with the Australian Renewable Energy Agency (ARENA) to study whether hydrogen could replace natural gas in alumina refineries to reduce emissions.
Initiating a A$1.2 million (US$778,404) feasibility study – equally funded by ARENA through a A$580,000 (US$376,229) grant – into using clean hydrogen to replace natural gas in the calcination stage of producing alumina at the Yarwun alumina refinery in Gladstone, Queensland, the study must have had some promising results as the top aluminum producer announced in July its plans to deploy a demonstration plant in collaboration with partner Sumitomo Corp.
To be built in Australia, at Yarwun, the A$111.1 million (US$73.9 million) pilot project will be a first-of-its-kind deployment of hydrogen calcination in the world.
Co-sponsored by ARENA, which contributed A$32.1 million (US$21.3 million) to the venture, the project is designed to reduce pollution from alumina refining, which accounts for roughly 3% of Australia's greenhouse gas emissions.
As the world's largest exporter of alumina, Australia relies on its production, which contributes approximately A$7.5 billion (US$5 billion) to the nation's gross domestic product.
ARENA CEO Darren Miller said the pilot is an important step in the development of hydrogen calcination and the decarbonization of the alumina production process.
"This world-first pilot looks to prove a promising technology for decarbonizing one of our most emissions intensive industries," he said.
ARENA's Alumina Decarbonisation Roadmap, or Alumina Roadmap, published in 2022, identified hydrogen calcination as one of four technologies that could reduce emissions from Australia's alumina refineries by up to 98%.
The renewable energy agency has been investing in projects to reduce emissions from the aluminum value chain since 2021. This includes providing funding to Alcoa, an American-based aluminum producer out of Pittsburgh and the eighth largest in the world, to investigate electric calcination and trial mechanical vapor recompression, two further technologies identified in the Alumina Roadmap.
The final part of the Bayer process, the most widely used method to transform bauxite into alumina, calcination, requires a lot of energy. Heating up hydrated alumina from the preceding precipitation stage at temperatures up to 1,100 degrees Celsius (2,012 degrees Fahrenheit) to form anhydrous alumina, the primary fuel to reach this temperature has typically been natural gas.
With a demo plant underway, the carbon-contaminated steam from fossil fuel-powered calcination could become what hydrogen power is most notable for, pure water molecules.
Once constructed, Sumitomo will own and operate the electrolyzer – the device that catalyzes alumina into aluminum – at Rio Tinto's site and supply the hydrogen to Rio Tinto directly. With a production capacity of more than 250 metric tons of hydrogen annually, Rio Tinto will conduct a series of tests of the prototype hydrogen calciner under different operating conditions to validate suitability and performance.
If successful, the project will demonstrate the viability of hydrogen calcination and pave the way for adoption at scale across other alumina refineries, according to ARENA.
"Having already backed an encouraging feasibility study, we're excited to be working with Rio Tinto and Sumitomo Corporation to build on that success and trial hydrogen calcination in the field," said Miller. "If this pilot project is successful, it could be a game changer for Australian alumina production, paving the way for deployment across the industry, and underscoring the importance of low-cost green hydrogen to decarbonize our largest industrial emitters. ARENA will continue to support projects at this scale as we develop other larger programs, such as Hydrogen Headstart."