US and India may join China to become the biggest aluminium producers

In 2000, China represented roughly 12% of global production and the fact that it’s now 45% illustrates the seachange that the development of China has meant for the aluminium market. In addition, India and the US are also becoming increasingly attractive to be major aluminium producers.

This trend is expected to extend, with China nearing 50% by 2017. One would think, given this impressive expansion in aluminium smelting capacity, that it was one of the world’s lowest cost producers, why else would one build so much? This is an example (of many) where economic theory fails. China is in fact a region experiencing some of the world’s highest costs. Expansion has been a function of low cost capital, low environmental hurdles, hitherto low cost labour and government directive.

The cost split for global aluminium production can be quite variable depending on geography. For example, the energy component would be nearly 45% of costs in China, while labour closer to 3%. This would compare to Middle-Eastern producers whose alumina costs are a considerably higher proportion of total costs given their power advantages.

Apart from China, there are two very promising regions for future aluminium production: India and the US. India has large reserves of high quality bauxite and large reserves of thermal coal. Thus the potential for very low cost power and readily available ore could represent a significant opportunity (provided the political will is also present). The US, also has considerable potential given the recent increase in energy availability, the potential for the dollar to underperform other currencies and the availability of skilled labour.