Current prices insufficient to trigger aluminium CAPEX



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Report summary

Wood Mackenzie routinely reassesses the long run alumina and aluminium incentive prices, which are the minimum prices needed to make investment in new capacity economically viable. In formulating our view of long run alumina and aluminium prices, we move away from supply-demand-inventory style analysis and use a financial-based model, using discounted cash flow and internal rate of return (IRR) to determine the equilibrium incentive price. In line with conventional economic theory, we assume that in the long run the alumina and aluminium markets are in equilibrium.

What's included

This report contains

  • Document

    Current prices insufficient to trigger aluminium CAPEX

    PDF 333.35 KB

Table of contents

  • Some refinery costs have become embedded but overall costs declined
  • Assumptions used to construct incentive prices
  • We employ the following core assumptions:

Tables and charts

This report includes 7 images and tables including:


  • Smelter capital intensity outside of China, 1980-2020 (US$/t installed capacity)


  • Alumina prices will have to increase in the future to trigger investment in alumina refinery
  • Some of the increase in refinery energy costs over the years became embedded
  • Current prices insufficient to trigger aluminium CAPEX: Image 5
  • China still carries the lowest capital intensity
  • Aluminium prices need to increase to trigger investment but to levels below historical averages
  • Efficiency and productivity gains meant little embedded costs in aluminium production

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