Aluminium at a crossroads: synchronising supply growth with decarbonisation

As global demand for aluminium increases-driven largely by the energy transition sector—balancing supply growth with pressure to decarbonise production remains a key industry challenge. With China approaching its capacity cap, the need for substantial investment to maintain supply elsewhere remains tepid. At the same time, new technologies that enable the production of low-carbon aluminium are at different readiness levels. 

This article provides a summary of the near- and mid-term outlook for the aluminium industry, but to download the full presentation on aluminium from our recent Future Facing Commodities Forum and access all related data, please fill in the form at the top of the page.    

China’s capacity cap shapes medium-term outlook 

As China nears its 45 Mt capacity cap , the medium-term outlook is being triggered by slowing investment from the rest of the world to meet the rising demand. Countries like Indonesia and India are forecast to be significant producers, but so far, growth has been slow. Without investment, global supply growth could lag demand. 

In the short term, we see trade tensions and growth risks impacting production. However, the longer-term outlook is more positive, with a modest cyclical recovery and strong offtake from the energy transition sectors is expected to support sustained demand growth. 

Electrification driving demand 

By 2040, we forecast that energy transition sectors will account for 37% of total aluminium demand driven largely by the major sector contributors of solar, electric vehicles (EVs) and transmission and distribution (T&D).  

T&D remains strong - second only to EVs. As global electrification grows, new transmission infrastructure is becoming increasingly urgent, especially within developing countries. Aluminium will gain from substitutions within certain applications, owing to cost savings and improved reliability. Across grid infrastructure options, substitution rates look positive at ~70% for high-voltage transmission lines, ~60% for underground power cables, ~55% for subsea cables, and ~65% for microgrids. 

Taxing carbon leakage 

The EU’s Carbon Border Adjustment Mechanism (CBAM) is a pivotal carbon pricing tool designed to prevent ‘carbon leakage,’ where production from high-emitting sectors like aluminium is relocated outside the EU to circumvent stringent environmental regulations. Its effectiveness depends on the inclusion of both direct and indirect emissions, which would favour producers utilising green power and low-carbon technologies. Its success will rely on the inclusion of direct and indirect emissions. If both are included, producers using green power and low-carbon technologies will have the competitive advantage. 

While this tax is a step in the right direction, more needs to be done to address carbon leakage and create a level playing field on a global scale.  

Reducing direct emissions through technology 

Despite growing demand, the long-term sustainability of aluminium relies on the transition to low-carbon production. While there is an imperative for the development of new, sustainable technologies to replace current high-emitting ones, these technologies vary widely in their level of maturity. Solutions such as electric boilers, hydrogen calcination, and inert anodes have significant potential for a medium or high impact on GHG emissions reduction but remain at different readiness levels and are not yet ready for large-scale deployment. 

Indirect emissions from smelting are primarily due to fossil fuel-based energy consumption. Transitioning to renewable energy sources like solar and wind can reduce these emissions but faces challenges due to their intermittent supply. Smelters use Power Purchase Agreements (PPAs) to secure long-term, reliable renewable energy, though recent issues like project delays and high upfront costs have hindered their viability. Only 5% of the global aluminium smelting industry has adopted renewable energy, making a minimal impact on decarbonisation targets. 

The aluminium industry’s future success depends on a transformative shift to low-carbon production methods. However, this shift is more evolutionary than revolutionary, with significant roadblocks still remains.  

Closing the gap with scrap 

Secondary aluminium, produced from recycled scrap, constitutes 42% of total consumption, highlighting its crucial role in bridging the supply gap. Utilising scrap reduces energy consumption and emissions compared to primary production. Expanding the use of scrap aluminium enhances the industry's sustainability and its capacity to meet increasing supply demands. Aluminium significantly lowers cradle-to-gate emissions when used instead of primary aluminium. Therefore, increasing the proportion of post-consumer scrap-derived recycled production will reduce the need for primary production and help lower emissions. 

Learn more 

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