Demand in main aluminium market segments is expected to remain depressed, a situation that could continue throughout the year. There is substantial uncertainty regarding the timing of a recovery. Global primary aluminium consumption excluding China could decline by up to 10 to 15 percent in 2009 from a consumption level of 25 million tonnes in 2008. Chinese consumption may fall slightly from the 2008 level of 12.5 million tonnes.
Market demand for flat-rolled products in Europe is expected to continue declining during the coming months, driven by lower demand from most markets. The overall outlook for the European extrusion market is weak, with lower demand across most market segments, in particular the automotive and transportation segments. In the U.S., extrusion markets are expected to remain severely depressed, with no signs of recovery.
Chinese aluminium production has experienced a relatively sharper slowdown than the rest of the world, partly due to
the higher operating cost levels for Chinese producers. Production in China amounted to about 950,000 tonnes in December, or roughly 11.1 million tonnes on an annualized basis. This was substantially lower than annualized production of 14.3 million tonnes reached earlier in 2008. Demand for primary aluminium in China increased 4 percent in 2008 compared with 2007, but consumption in the fourth quarter declined 17 percent compared with the fourth quarter of 2007. The Chinese authorities have discouraged the export of energy in the form of primary aluminium through the imposition of export duties. Fiscal measures make China a self-contained market for primary metal. As a result, the market balance for primary aluminium in China is not expected to have a significant impact on primary metal markets outside of China.
During the past two decades, three major global integrated companies emerged as a result of the substantial concentration of upstream aluminium activities: Alcoa, Alcan and Hydro. In addition to these three integrated companies, several large companies have focused mainly on upstream operations – bauxite, alumina and/or primary metal – such as BHP Billiton, Rio Tinto and Vale. In 2007 Rio Tinto acquired Alcan, creating Rio Tinto Alcan as one of the major alumina and aluminium producers. In 2007 the Russian aluminium industry was consolidated into one major company, United Company Rusal. Since the 1990s, China has emerged as a major consumer as well as producer of primary metal.
Aluminium price developments
Aluminium prices exhibited a historic decline in the second half of 2008 as the turmoil in the financial markets spread to the general economy.
During recent years, there has been a strong upward shift in the cost curve for primary aluminium production, triggered mainly by a significant increase in energy prices and natural resources. However, the cost of producing aluminium is declining due to the recent fall in commodity prices as a result of the deepening economic downturn. Production costs are expected to decline further depending on global economic developments.
Production moving to energy-rich areas
In the future, primary aluminium production is expected to be developed in energy-rich areas where power prices are more competitive than in developed energy markets such as Europe and the U.S. These countries and regions are expected to include the Middle East, Russia, Iceland and some countries in Africa, Asia and South America. China will also continue to be an important producer and consumer of primary metal.