July 26, 2023 • 29 mins
Aluminum is one of the most commonly used metals today, appearing in everything from new buildings to food packaging. But what, exactly, makes aluminum such an important metal, and why are its emissions so difficult to abate? On today’s show, Dana talks to Dr Kwasi Ampofo, BNEF’s head of metals and mining. Together they offer a deep dive into aluminum production and consumption, discussing not only the metal’s applications across a range of sectors, but also the sky-high energy needs of primary aluminum production, the importance of aluminum scrap and recycling, and how ‘urban mining’ could help alleviate supply-chain snags.
Complimentary BNEF research on the trends driving the transition to a lower-carbon economy can be found at BNEF<GO> on the Bloomberg Terminal, on bnef.com or on the BNEF mobile app.
Links to research notes from this episode:
Global Scrap Outlook: Filling the Supply Gap
Transition Metals Outlook 2023
Global Aluminum Outlook, 2021-2040
See omnystudio.com/listener for privacy information.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
This is Dan of Perkins and you're listening to Switched
on the BNAF podcast. I'm sure you're familiar with drinks
cans and aluminum foil to wrap your food, But then
what about the aluminum used in lightweighting of vehicles and
of course in batteries. BNAF sees aluminum demand going up
in the future, and our Global Aluminum Outlook expects to
see this demand increase by seventy seven percent between twenty
(00:22):
twenty two and twenty forty. According to the US Geological Survey,
it's the second most abundant metal element in the Earth's crust,
second only to silicon, and the second most used metal
next to iron. So what's not to love? Well, it
falls into the hard to abate category. So why is
it hard to abate? And what are the processes involved
in its production? And how does this compare with other
(00:44):
metals in terms of emissions. Given it's well known for
being infinitely recyclable, we also want to know what the
conditions are that are right to keep it in the
circular economy. In today's episode, we welcome back BNF's Head
of Metals in Mining, doctor Quasimpofo. Together we discuss a
range of topics, including the wide role aluminum plays across
a number of industries, including automotive and clean energy, the
(01:06):
differences between the primary production and recycling processes and the
definition of green aluminum, the global supply chain behind aluminum
it's production and exports, and how current geopolitical issues including
the Carbon Border Adjustment Mechanism or seabaand for short, could
affect the sector. As always, if you like this podcast,
make sure to subscribe to receive updates on future episodes
(01:29):
on your device, and consider giving us a review on
Apple Podcasts or Spotify to make us more discoverable by others.
And now let's go to my conversation with Quasyquaisy. Thank
(01:49):
you for joining us on the show today.
Speaker 2 (01:51):
Thank you Dana for having me once again, says some
ground roles.
Speaker 1 (01:54):
Is it going to be aluminum or aluminium?
Speaker 2 (01:57):
Let's go the American way.
Speaker 1 (01:58):
We're going to go with aluminum. Yes, aluminum it is.
So let's actually do a little bit of background on
aluminum and where it's used. Now, obviously people are going
to associate it with maybe their can of soda and
see it from the consumer end of things, but it's
actually an extraordinarily useful and increasingly in demand metal in
the energy transition. So can you give me just a
(02:20):
little bit of information regarding the current use cases for aluminum.
Speaker 2 (02:25):
I think before we talk about the current I just
wanted you to take you on the journey of history.
And you know it would amaze you to think that
a couple of hundred years ago, if a guest visited
you a home and you wanted to bring out your
best cookin wear to serve your muss VIP guest, it
would be an aluminum plate and then you would give
the gold plates to the average guests.
Speaker 1 (02:45):
Wow, where were they getting the aluminum? And certainly they
weren't doing the smelting that we're doing today exactly.
Speaker 2 (02:49):
So that's just precisely why aluminum back then was seen
as a luxury product because of the smelting, the costs
required to obviously process the box site, which we'll talk
about fully later into aluminum. And what we realize is
that ultimately when technology made the smelting of aluminum a
cheaper process, hence aluminum becoming a cheaper product, it became
(03:11):
that every day use plate or silverware so to speak,
that you house your guest with. But it's just interesting.
I wanted to take you back and to answer your
question what is the current use case for aluminum? And
I tend to say that it's actually one of the
most used metals. And you talk about the energy transition,
which obviously is one important key factor, But then in
terms of the demand construction, almost every major building would
(03:33):
have some pieces of aluminum in there. Every modern vehicle
would have some pieces of aluminium in there. And you
talk about the infamous famous cans, Coca coula cans or
Pepsi cans or whatever can it is, there is also
an aluminum there. So if we look around US, aluminum
plays a very important role in everyday life, including food packaging.
Speaker 1 (03:52):
And is this because it's inexpensive or because of some
of the unique properties of the metal.
Speaker 2 (03:56):
Obviously unique properties come first, because if you're thinking, of course,
compared to something like plastic, plastic is cheaper and alumnum
would obviously be more expensive. But then it come down
to its qualities in terms of the unique next. But
then most importantly I think the weight. Imagine having your
Coca cola made of steel, the extra weight that you
would have to accommodate in terms of transporting it from
(04:17):
one point to the other, or even just holding it
in your palm. So above all else, beyond its unique characteristics,
like you rightly mentioned, is a light weight that it
comes with that makes it very unique.
Speaker 1 (04:28):
So I'm thinking it might be used for lightweighting for
a number of things you're mentioning consumer products. I certainly
see the use case within vehicles. Is that a reason
for kind of future application the lightweighting potential, Actually, I.
Speaker 2 (04:41):
Would say it's not even future, it's a current application.
And I think historically it's important to understand that there
are two ways autocoons can improve the efficiency of a vehicle.
So one either you get a bigger range in so
you can go faster, or you maintain the engine size
and reduce the weight of the car to optimize the cast.
Before and like I said, backward internal combusting engine, the
(05:03):
use case was not really predominant. But then the moment
you come down to battery electric vehicle, the battery itself
is a very heavy product. And what you're trying to
do if we are thinking of increasing the range of vehicles,
which in North American market is a very important distinguishing
factor between two electric vehicles you have two options there.
You can either keep investing in better batteries that are
(05:25):
denser that will give you more range, or you can
maintain the battery and then reduce the size of the car.
And what automakers actually come in to realize is that
you can actually use aluminum for the body of the
vehicles to significantly reduce weight, but then probably get similar
results than you do in using steel at a cheaper cost.
Speaker 1 (05:43):
So before we get into really this outlook for increased
demand going forward, let's just take a moment for you
to paint a picture in my mind of what the
production process actually looks like and why this particular metal
falls into the hard to abate sector and it's considered
extremely carbon intensive. Will you tell me if I'm walking
(06:04):
up to this, first of all, what's the size, what's
the scale, and what's actually happening in an aluminum production facility.
Speaker 2 (06:11):
It's quite an interesting one. So it's a metal that
goes through about three stages. So first, just like every
other metal, you need to get it one way or
the other from the ground. And aluminum is one of
the few metals that is not actually free in nature,
and by that I mean you're not going to go
into a mine and see aluminum just lying there onlike gold.
So hence my initial historical fact about the fact that
(06:34):
aluminium was expensive because they had to go through a
couple of processes. So you go to a mine and
you discover what we call box site. So box side
is an element on its own, free in nature, abandant
in countries like obviously Australia or China or Guinea.
Speaker 1 (06:49):
So we're not worried about how much box site there
is out there, not at all.
Speaker 2 (06:53):
The tricking point in the supply chain is not the appstream,
which is a box site. So you go on the mine,
you get the box site, and then you process it
into a product called alumna and which is an intermediary product,
and ultimately you're able to convert that alumina into aluminium.
But then, I know, it sounds very simple, sounds like
three words. But in theory between conversion of box side
to aluminum, do you're looking at a temperature of about
(07:16):
over one thousand degrees celsius And for most of our
listeners that sounds like a very abstract number. But Dana,
have you ever been close to an active volcano? No?
Speaker 1 (07:25):
Although no, no, Actually, I don't have any interest in
doing that, but yeah, sure no, if you.
Speaker 2 (07:30):
Did, you would realize that an active accounto the temperature
of an active volcano is mostly between a thousand to
two thousand, So in order to convert box side into
the aluminum that we see in our coca cola or pepsicants,
you would need temperatures close to what an active volcano
actually is. And then the question is how much energy
do you actually need to get temperatures of an active
(07:52):
volcano in order to convert box side to aluminium.
Speaker 1 (07:55):
And presumably this temperature needs to be maintained in the
facility for the deray of production. And it's not like
we go home at night, turn off the light, you know,
a thousand degrees down, let's go to zero, and then
come back the next morning and do it all over again.
Speaker 2 (08:08):
Precisely so, And it's actually one of the few processes
where you cannot have a downtime because the moment you
do whatever material you have in the smelter solidifies, the
moment the temperature drops, like you rightly mentioned, and you
probably have to spend a couple of billions building that
whole smelter or refine your facility again, so there's no
sleep days. When you produce an aluminum you charge it
(08:29):
at a thousand, and you have to stay consistent with that.
Speaker 1 (08:32):
Now, is the aluminum produced typically near where companies are
going to be using it? Or is this something that
has a massive global supply chain and is shipped everywhere.
Speaker 2 (08:42):
So the biggest driver for where you're going to find
an aluminum plant, it's obviously where you get cheap energy.
So unlike other commodities, say battery, where you want to
take it closer to where you produce it. Historically the
biggest driver because like I said, to be able to
crank up a smelter to temper of an active volcanol,
you need a lot of energy. So historically we've seen
(09:04):
that aluminum refineries and smelterts move closer to places where
they can get cheap energy. And in the twentieth century,
one of the cheap energy sources was obviously hydro electric power.
So you can find in Scandinavian countries, in New Zealand,
in Canada, or countries where mostly there are very reliable
and dependable hydro electric power, we find the aluminum production
(09:24):
moving there as well.
Speaker 1 (09:26):
Now, the way that you've described a plant really doesn't
trigger to me that there is going to be much
of a difference from an energy and intensity standpoint for
raw aluminum versus recycled aluminum. Is there from a production
standpoint a big benefit of using recycled aluminum when we're
thinking about emissions, So there's.
Speaker 2 (09:46):
A lot of benefits there. And from an energy perspective,
if you decided to get your aluminum from a recycled source,
you use fifteen times less energy twenty two times less emissions.
Now that is a big winner if you care about
environment like you and I do. And so what we're
seeing is that companies are actually when they go to
their suppliers, they don't first ask can you produce aluminum
(10:09):
from primary sources? First? For us, they actually want to
know how much talk of recycled aluminum you have, and
I would prefer to buy that first before we talk
about primary So, yes, there's a use case if you
care about the environment for recycled aluminum. But then it's
not just about the energy and then the emissions intensity
that is lower. Let's take a country like China. Last year,
(10:30):
China produced about forty two million tons of the commodity
which is close to about fifty percent of what's produced
last year. What we know in China is that over
the last ten years production has increased quite significantly. However,
Beijing has set a target that you cannot go more
than forty five million for primary production. So China's smelters
and refineries only have three million more of runway in
(10:52):
terms of capacity increase for primary aliminum. So what is
going to happen over the next five years in China
where the largest aluminum is producer, We think that the
switch to secondary aluminum is going to happen quicker and sooner.
Speaker 1 (11:05):
So when it comes to the term green aluminum, is
it predominantly recycled or does it have to do more
with the energy source that's actually powering the facility?
Speaker 2 (11:13):
So green aluminum is actually the end product. So I
would like to say green aluminium is technology agnostic, But
then it's practically difficult, even not impossible, to rely on
primary aluminum in order to achieve green aluminum, because then
it becomes even with secondary even with recycle, it's not
entirely green. You still probably need to rely on some offset.
(11:34):
So I would say that green aluminum the easiest route
if a company is thinking about green aluminum would be
to probably rely on secondary sources which requires less energy,
which requires obviously less associated with less emissions and potentially
cheaper and where you still have some emissions associated with
the supply chain, off sets play a key role in
(11:54):
order to deliver those green aluminum and then we are
seeing that actually happen. I think Apple has established an
off take agreement with Rio Tinto. I think the next
Presso has also made some announcements about using green aluminum
for its cupsules coffee cupsules, So there's a use case
for it, but that is still on the fringes of
the main supply demand market. Hopefully, with time, as policies
(12:16):
that encourages and enforces the emission reduction of the HAW
TWA base sectors come into play, we could potentially see
green aluminum entering the mass market.
Speaker 1 (12:25):
So green aluminum as the end product is going to
be comprised of some recycled materials, and we'll come to
that in a second. Actually what goes into the materials
of the recycling process and what you actually need there.
But how about the energy sources? Because of the energy
intensity you mentioned hydro being one of the main areas
when I think of certain parts of China's grid, I'm
(12:47):
thinking about the access to inexpensive and high intensity coal.
Is green aluminum something that can actually be powered by
renewable energy sources? Or is the energy intensity just too high?
Speaker 2 (12:58):
So because the energy reques it's fifteen times less for
recycled you don't need, it's already heated up. But because
your energy demand is significantly lower that it would be
as compared to primary supply, you realize that the intensity
of energy you would actually need in order to produce
recycled aluminum is way way lower. So that opens up
other energy sources, which is like you rightly mertioned cleaner
(13:21):
and probably cleaner compared to say coal or other sources
for them to be competitive from a cost perspective, but
then most importantly from a reliability perspective in producing the
recycled aluminum that would ultimately become the green alumino.
Speaker 1 (13:34):
Okay, so it's not just the fact that it's recycled
products that really changes the emissions of this, it's the
entire production process. So walk me a bit through that
and some of the things that make recycled aluminum unique
and really what the type of metal is that you need,
because it's not all just the cans that I am
(13:54):
throwing into my recycling bin at the end of the day.
Speaker 2 (13:56):
And for those of us listening, please always remember to
recycle your cans. It plays a very important role in
the supply chain now and more so in the future.
But then to answer your question, there are two sources
of what we call fee stock or mosh scrap where
we get our recycled aluminum from. So number one is
what we call the old scrap. So, like I said,
if you've got can't in your kitchen that you probably
(14:17):
have finished using and looking to dispose, it's an important
fee stock for the market.
Speaker 1 (14:21):
And are they taking scrap out of these cars as
well and out of batteries. It's coming from everywhere precisely,
So this is what you're seeing at a scrap yard
when you drive past it.
Speaker 2 (14:29):
And so there's actually money to be made for those
who collect them, because what these smelters do is actually
they buy them. It's like going to a mine and
digging our box sites. This time you're donating the middle
of a city. So there's actually value in end of
life cast. That's why we call them salvage value. There's
value in there because of the metals that come with
ease dens and what we're seeing is that this old
scrap is going to play a key role in ensuring
(14:51):
that we meet our recycling demand. But there is also
another part of scrap, what we call newscrap, and then newscrap,
which is probably not common because it doesn't have to
do with consumers. It comes from manufacturers. So for every
manufacturing process there's something called scrappage. Human beings are not perfect,
so our machines. So whenever we have to produce a product,
a setain percentage of it would not ultimately end up
(15:13):
going into the final finished product, so we call them scrap.
We put that away. So in the production of aluminum products,
in the products there is also scrappage, so about ten
to fifteen to twenty percent, depending on the efficiency of
the factory or the manufacturer, would go into scrap. So
that scrap is also sold to a recycling company who
would then use that as a fee stock to ensure
(15:34):
that they're able to produce recycled aluminum.
Speaker 1 (15:37):
Now new scrap, this is the leftovers can new scrap,
and I'm going to get really circular. Here, can it
be recycled aluminum but just the leftovers from a different
production process?
Speaker 2 (15:47):
Yes, so all of them go into another smelting and
is melted again. But then the thing is that news
crap has a higher value because it's not contaminated. So
if you think about your cant, first of all, yes
it's an a on can, but then it's quoted with a
logo like for example, I said coca cola or pepsi
or whatever product it is, so that in itself is
(16:07):
a form of contamination that these recycling manufacturers would have
to get rid of. So the preference for most recyclers
is obviously to use if they could get access to newscrap,
that would be great. And then obviously, as manufacturers get
better at their job, the scrappageerate reduces, so you don't
find a lot of that newscrap in the market. And
if you permit me to throw some numbers, last year,
(16:28):
global production of news grap was about fifteen point five
million tonto.
Speaker 1 (16:31):
Is that enough?
Speaker 2 (16:32):
There is not enough newscrap, but of course that is
going to grow. By twenty thirty five, we expect our
market to reach twenty two point seven million, So that's
just shy of eight million increment over the next thirteen years,
whereas oldchscrap, which most of our listeners will be familiar with,
is currently sitting at around twenty three million in twenty
twenty two, but that would rise up to forty eight million,
(16:53):
And like I said, every recycler's dream would be to
get access to the new kind of scrap. But then, hey,
oach crap is not bad as well, given that it
helps lower the emission intensity of the production of alumino.
Speaker 1 (17:06):
So we don't have enough scrap, either old or new,
to meet future demand for what we are thinking about
the aluminum market could potentially look like in the not
so distant future. And I guess the question is really
how do we fix that the couple of ways.
Speaker 2 (17:20):
Number one, we have to increase primary supply, but then
primary supply in areas where obviously you get access to
clean energy sources. Number two, we would have to increase
the recycling, because not all the aluminum that exists in
stock today is actually recycled when they reached their end
of life. And that is why I encourage her consumers
(17:40):
as an example that if you are disposing of anything aluminum,
it's important you take it to recycling in order to
increase the fee stock that will be available for recyclists.
And once we do that, we increase their recycling production
as well. The thirteen, which is an interesting one, is
what I call the power of technology. If we develop
alternatives to our e liminum where there is light weighting,
(18:01):
or vehicles where there is cant As we develop alternatives,
we think that for example, in a base case, if
nothing changes last year, we consume over eighteen million tons
of aluminum on a business as usual trajectory, that could
rise to about one hundred and forty two million data
by twenty forty. That that's a lot of growth. And
like I said, business as usual unless we are either
(18:23):
mining more, recycling more, which probably would not be as
easy as investing in technologies that would reduce our dependency,
so that one forty million by twenty fifty could end
up actually being one hundred million rather than one forty
million as a result in investments in technologies that reduces
our demand for aluminum and then shift that to something else.
And an example is obviously the grid. So if you
(18:44):
take the grid is mostly metals and by grid I'm
referring to those transmission lines you probably see app in
the sky that takes power from a source all the
way down to your homes. And what we've realized is
that the dominant metals are actually copper or aluminum. But
here's where it gets interested. When ropper prices rise very high,
companies tend to switch to aluminum, and eliminum prices rise,
(19:05):
they tend to switch to copper. But this substitution is
purely based on economics. What we should be looking at
in the next generation of consumption, whether it's great or
vehicles or builders, is how can we replace our use
of aluminum with other products in order to reduce the amount.
Speaker 1 (19:21):
So not copper and not aluminum. But if I had
to pick between the two, which has the lower emissions intensity?
Speaker 2 (19:28):
Copper has a lower emissions intensity, but it comes out
of a prices is about three four times more expensive
on a paton basis compared to aluminum.
Speaker 1 (19:37):
So you've definitely established that there is a bright future
for aluminum demand and it doesn't seem to be evading
anytime soon. And I want to know, really, where is
it coming from. Is it entirely vehicles? Certainly not drinking
any more soda on my end, so it's not my fault,
But where is the additional demand coming from going forward
in the next several decades.
Speaker 2 (19:57):
So a Keithan will be the infrastructure for rubble energy.
As energy producers decentralize and obviously invest in solar and wind,
we will need a lot of infrastructure to support the
solars and then the wind turbines and so majority a
big percentage of the growth we expect moving on over
the next twenty years will come from renewable energy infrastructure.
(20:18):
That is number one. Number two is obviously construction. So
what we've realized is that once again governments are enforcing
sustainable ways of putting up, whether there it's some skytscapers
or even just traditional buildings. What we've realized is that
in some countries or in some cities, there is a
soft enforcement and I don't mean hard enforced. By soft enforcement,
(20:39):
governments has hinted that construction companies would need to have
a second look at the emissions profile, and what is
happening is that we're seeing more and more companies shift
to our luminum in the air building infrastructure because potentially
if you use recycled aluminum you are able to reduce
their emissions footprints, so construction will be one of them
in which part of the world to states, and the
(21:01):
third one is the transport industry. Earlier I mentioned how
battery electric vehicles have two options when they want to
increase the performance of the vehicle. You either keep investing
in better batteries that would give for example, American and
use as the range they need, or you can reduce
the weight and the weight of a car an electric vehicle,
you're looking at a one torn beast in terms of size,
(21:22):
so if you can reduce that one torn vehicle, you
ultimately improve the performance without even touching the battery. So
three areas infrastructure to support new energy, build, construction industry,
and then the battery electric vehicle industry would be the
biggest groups demand sectors for aluminum in future.
Speaker 1 (21:41):
Now it seems to me that there is certainly more
demand for green and recycled aluminum, but we're going to
see a good amount of brand new aluminum with need
for box site to be mined. And I want to
better understand even though there's enough of it out there
at least to meet our forecasted future demand, where is
it located and really is available, ability of it in
some way open to geopolitical risk because invariably, if it's
(22:04):
in just a couple of locations in the world, those
countries have the ability to really control the global supply.
Speaker 2 (22:10):
Indeed, and JOSI throw numbers, which I try not to
do often, three countries produce seventy two percent of the
books that we need to produce alumina one, two, three,
just three, So three quarters of aluminamus coming from Australia,
China and Guinea. And you rightly mention that when you
have such few countries controlling a big chunk of the
supply chain, it's exposed to disruption. Last year, aluminum prices
(22:33):
rose to record highs simply because a few months ago
there was a quiditar in Guinea, which is a major
producer of the commodity. Then instantly aluminum producers started getting
consent around will I be able to get access to
the raw materials I need? And that drove prices very high. Now,
if you look at the aluminum supply chain itself, take
(22:54):
an example, Russia controls quite as significant part of the
production through Roussal, and obviously when the war happened, or
began last year and sanctions were imposed on a lot
of companies, and companies self sanction themselves with Russia. What
happened was that overnight aluminum prices spiked up as well,
even though there were no direct sanction on Russia aluminum.
(23:15):
But that is why it's important obviously for governments companies
to help diversify the supply chain in order not to
depend on a few countries. But it gets interesting when
you go up stream, because stop doing that. These metals
are given by nature. No matter how good America gets,
if you don't have it in the ground, you don't
have it. There's nothing you can do about it. But
(23:36):
then there's another option, urban mining. If countries like America, Canada,
the UK, Europe as a whole would invest in making
recycling a big part of the supply chain, then we
would need to depend on three countries for the few
stock we need to produce aluminum.
Speaker 1 (23:54):
So not only is there geopolitical risk, but invariably there
are current policies in place both supporting recycling and decarbonization,
but also changing the way supply chains and trade works.
And one of the things I'm wondering is in the EU,
the carbon border adjustment mechanism. What impact is this having
on aluminum producers?
Speaker 2 (24:15):
So, the way I like you think about it is
Europe's role from a demand supply perspective, compared to countries
like China or the United States, Europe is relatively small. However,
I tend to believe that when Europe coughs, the world
catches a cold. And I use metals as an example
whenever I talk about this, because sea bomb in itself
or the carbon boarder adjustment mechanism might have an impact
(24:37):
on a very small percentage of global production. Once the
EU enforces these kind of policies, it becomes a global
standard and how the country adopt it. So let's unpack
what sea bumbers. So what the European Union is currently
saying is that, look, we've set very high targets for
our local producers, that your emission's profile need to stay
within a certain range. Either than that will put a
(24:58):
penalty on every turn of aluminum you produce. And that's
good news. But then you think about the fact that
at the same time, Europe's border is open to important
aluminum products from countries like China or the United States
or wherever it becomes unfair for domestic producers. So what
the European Union then decided is that to ensure that
we level the playing field, if you are important aluminum
(25:20):
from any third country, we need to know their mission's
profile of that product as well, And if it doesn't
meet the domestic standard we've set and it crosses that threshold,
you would have to pay a carbon tax, so to speak.
So in theory, like I said, it would just touch
just a small percentage of supply, given Europe is not
the biggest demand center. But what I've seen in previous
(25:41):
policies related to metals that came out of Europe is
that it begins to set the global benchmark that other
countries will follow. We're time, I would not be surprised
that China will come up with its own version of SEABAM,
where time I would not be surprised that America will
come up with its own version of SEABAM, which I doubt,
or with time, we would probably see a similar thing
happening in Australia, And for me, that would be the
(26:04):
legacy of SEABAMB, not necessarily the amount of production that
it would currently impact.
Speaker 1 (26:10):
Do you doubt or do you think that it would
happen in the United States see a version of seabam.
Because I heard you say both. You said with time,
it could happen in America, which I.
Speaker 2 (26:19):
Doubt understand sir. America's metals policy has always centered around
national security. Unlike Europe, where it's mostly sustainability driven and
everything else. In America, until it has to do with
national security, there are very little regulations around it. Maybe
in some states like California, but then obviously there's no
aluminum going on in California. At the federal level, I
(26:41):
doubt that America would have the free reign to actually
enforce even emission cups to the largest then or extend
it to a body adjustment mechanism. So if possible, never
say never. If you look at the Inflation Reduction Act,
I never thought that America would actually come to the
table with such a big bang, but here's what they did.
So never say never that it will be a very fastretch.
Speaker 1 (27:04):
Okay, so we've reached watter ignore. Now you as the
lead metals analyst and leading our metals team, I've got
a couple of things for you, and I'm just going
to throw out a word or a phrase and I
want to know if this is something that you are
watching closely at the moment, or if perhaps you're ignoring
it at present, waiting for it to emerge as something
(27:26):
more significant in the future. So you're not saying that
it'll never be important, but right now not something you're
watching closely. So watter ignore boxed drinks replacing canned aluminum drinks.
Speaker 2 (27:38):
Never, that's not preference d.
Speaker 1 (27:44):
It's that cold can that you've taken out of the fridge.
It's just so great.
Speaker 2 (27:47):
Okay, I cannot imagine drinking my BF from a boss.
Speaker 1 (27:50):
But perhaps more relevant to the metals industry in water,
ignore drones for monitoring minds. And then how about blockchain
specifically for aluminum.
Speaker 2 (28:01):
Watch Obviously we've talked about the carbon body adjustment mechanism.
Part of the challenges is really effectively tracking the supply
chain emissions associated with every piece of aluminum that is
important in the EU. And am I not necessarily be blockchain,
but I do believe that technology including blockchain will play
a key role to enabling regulators to monitor that. So
(28:22):
something that we keep in eyes on. We've written about
it a few years ago in terms of how blockchain
or technology from a wider perspective will play a key
role in supply chain tracking.
Speaker 1 (28:33):
Okay, thank you very much for joining us today. Quasy
to talk about this hard to abate space that is
aluminum that we're all watching closely.
Speaker 2 (28:40):
It's always anana to join you, Dana, Thank you.
Speaker 1 (28:51):
Bloomberg ne EF is a service provided by Bloomberg Finance
LP and its affiliates. This recording does not constitute, nor
should it be construed, as investment advice, investment recommendations, or
a recommendation as to an investment or other strategy. Bloomberg
an EP should not be considered as information sufficient upon
which to base an investment decision. Neither Bloomberg Finance LP
(29:13):
nor any of its affiliates makes any representation or warranty
as to the accuracy or completeness of the information contained
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this recording is expressly disclaimed.
This is Dan of Perkins and you're listening to Switched
on the BNAF podcast. I'm sure you're familiar with drinks
cans and aluminum foil to wrap your food, But then
what about the aluminum used in lightweighting of vehicles and
of course in batteries. BNAF sees aluminum demand going up
in the future, and our Global Aluminum Outlook expects to
see this demand increase by seventy seven percent between twenty
(00:22):
twenty two and twenty forty. According to the US Geological Survey,
it's the second most abundant metal element in the Earth's crust,
second only to silicon, and the second most used metal
next to iron. So what's not to love? Well, it
falls into the hard to abate category. So why is
it hard to abate? And what are the processes involved
in its production? And how does this compare with other
(00:44):
metals in terms of emissions. Given it's well known for
being infinitely recyclable, we also want to know what the
conditions are that are right to keep it in the
circular economy. In today's episode, we welcome back BNF's Head
of Metals in Mining, doctor Quasimpofo. Together we discuss a
range of topics, including the wide role aluminum plays across
a number of industries, including automotive and clean energy, the
(01:06):
differences between the primary production and recycling processes and the
definition of green aluminum, the global supply chain behind aluminum
it's production and exports, and how current geopolitical issues including
the Carbon Border Adjustment Mechanism or seabaand for short, could
affect the sector. As always, if you like this podcast,
make sure to subscribe to receive updates on future episodes
(01:29):
on your device, and consider giving us a review on
Apple Podcasts or Spotify to make us more discoverable by others.
And now let's go to my conversation with Quasyquaisy. Thank
(01:49):
you for joining us on the show today.
Speaker 2 (01:51):
Thank you Dana for having me once again, says some
ground roles.
Speaker 1 (01:54):
Is it going to be aluminum or aluminium?
Speaker 2 (01:57):
Let's go the American way.
Speaker 1 (01:58):
We're going to go with aluminum. Yes, aluminum it is.
So let's actually do a little bit of background on
aluminum and where it's used. Now, obviously people are going
to associate it with maybe their can of soda and
see it from the consumer end of things, but it's
actually an extraordinarily useful and increasingly in demand metal in
the energy transition. So can you give me just a
(02:20):
little bit of information regarding the current use cases for aluminum.
Speaker 2 (02:25):
I think before we talk about the current I just
wanted you to take you on the journey of history.
And you know it would amaze you to think that
a couple of hundred years ago, if a guest visited
you a home and you wanted to bring out your
best cookin wear to serve your muss VIP guest, it
would be an aluminum plate and then you would give
the gold plates to the average guests.
Speaker 1 (02:45):
Wow, where were they getting the aluminum? And certainly they
weren't doing the smelting that we're doing today exactly.
Speaker 2 (02:49):
So that's just precisely why aluminum back then was seen
as a luxury product because of the smelting, the costs
required to obviously process the box site, which we'll talk
about fully later into aluminum. And what we realize is
that ultimately when technology made the smelting of aluminum a
cheaper process, hence aluminum becoming a cheaper product, it became
(03:11):
that every day use plate or silverware so to speak,
that you house your guest with. But it's just interesting.
I wanted to take you back and to answer your
question what is the current use case for aluminum? And
I tend to say that it's actually one of the
most used metals. And you talk about the energy transition,
which obviously is one important key factor, But then in
terms of the demand construction, almost every major building would
(03:33):
have some pieces of aluminum in there. Every modern vehicle
would have some pieces of aluminium in there. And you
talk about the infamous famous cans, Coca coula cans or
Pepsi cans or whatever can it is, there is also
an aluminum there. So if we look around US, aluminum
plays a very important role in everyday life, including food packaging.
Speaker 1 (03:52):
And is this because it's inexpensive or because of some
of the unique properties of the metal.
Speaker 2 (03:56):
Obviously unique properties come first, because if you're thinking, of course,
compared to something like plastic, plastic is cheaper and alumnum
would obviously be more expensive. But then it come down
to its qualities in terms of the unique next. But
then most importantly I think the weight. Imagine having your
Coca cola made of steel, the extra weight that you
would have to accommodate in terms of transporting it from
(04:17):
one point to the other, or even just holding it
in your palm. So above all else, beyond its unique characteristics,
like you rightly mentioned, is a light weight that it
comes with that makes it very unique.
Speaker 1 (04:28):
So I'm thinking it might be used for lightweighting for
a number of things you're mentioning consumer products. I certainly
see the use case within vehicles. Is that a reason
for kind of future application the lightweighting potential, Actually, I.
Speaker 2 (04:41):
Would say it's not even future, it's a current application.
And I think historically it's important to understand that there
are two ways autocoons can improve the efficiency of a vehicle.
So one either you get a bigger range in so
you can go faster, or you maintain the engine size
and reduce the weight of the car to optimize the cast.
Before and like I said, backward internal combusting engine, the
(05:03):
use case was not really predominant. But then the moment
you come down to battery electric vehicle, the battery itself
is a very heavy product. And what you're trying to
do if we are thinking of increasing the range of vehicles,
which in North American market is a very important distinguishing
factor between two electric vehicles you have two options there.
You can either keep investing in better batteries that are
(05:25):
denser that will give you more range, or you can
maintain the battery and then reduce the size of the car.
And what automakers actually come in to realize is that
you can actually use aluminum for the body of the
vehicles to significantly reduce weight, but then probably get similar
results than you do in using steel at a cheaper cost.
Speaker 1 (05:43):
So before we get into really this outlook for increased
demand going forward, let's just take a moment for you
to paint a picture in my mind of what the
production process actually looks like and why this particular metal
falls into the hard to abate sector and it's considered
extremely carbon intensive. Will you tell me if I'm walking
(06:04):
up to this, first of all, what's the size, what's
the scale, and what's actually happening in an aluminum production facility.
Speaker 2 (06:11):
It's quite an interesting one. So it's a metal that
goes through about three stages. So first, just like every
other metal, you need to get it one way or
the other from the ground. And aluminum is one of
the few metals that is not actually free in nature,
and by that I mean you're not going to go
into a mine and see aluminum just lying there onlike gold.
So hence my initial historical fact about the fact that
(06:34):
aluminium was expensive because they had to go through a
couple of processes. So you go to a mine and
you discover what we call box site. So box side
is an element on its own, free in nature, abandant
in countries like obviously Australia or China or Guinea.
Speaker 1 (06:49):
So we're not worried about how much box site there
is out there, not at all.
Speaker 2 (06:53):
The tricking point in the supply chain is not the appstream,
which is a box site. So you go on the mine,
you get the box site, and then you process it
into a product called alumna and which is an intermediary product,
and ultimately you're able to convert that alumina into aluminium.
But then, I know, it sounds very simple, sounds like
three words. But in theory between conversion of box side
to aluminum, do you're looking at a temperature of about
(07:16):
over one thousand degrees celsius And for most of our
listeners that sounds like a very abstract number. But Dana,
have you ever been close to an active volcano? No?
Speaker 1 (07:25):
Although no, no, Actually, I don't have any interest in
doing that, but yeah, sure no, if you.
Speaker 2 (07:30):
Did, you would realize that an active accounto the temperature
of an active volcano is mostly between a thousand to
two thousand, So in order to convert box side into
the aluminum that we see in our coca cola or pepsicants,
you would need temperatures close to what an active volcano
actually is. And then the question is how much energy
do you actually need to get temperatures of an active
(07:52):
volcano in order to convert box side to aluminium.
Speaker 1 (07:55):
And presumably this temperature needs to be maintained in the
facility for the deray of production. And it's not like
we go home at night, turn off the light, you know,
a thousand degrees down, let's go to zero, and then
come back the next morning and do it all over again.
Speaker 2 (08:08):
Precisely so, And it's actually one of the few processes
where you cannot have a downtime because the moment you
do whatever material you have in the smelter solidifies, the
moment the temperature drops, like you rightly mentioned, and you
probably have to spend a couple of billions building that
whole smelter or refine your facility again, so there's no
sleep days. When you produce an aluminum you charge it
(08:29):
at a thousand, and you have to stay consistent with that.
Speaker 1 (08:32):
Now, is the aluminum produced typically near where companies are
going to be using it? Or is this something that
has a massive global supply chain and is shipped everywhere.
Speaker 2 (08:42):
So the biggest driver for where you're going to find
an aluminum plant, it's obviously where you get cheap energy.
So unlike other commodities, say battery, where you want to
take it closer to where you produce it. Historically the
biggest driver because like I said, to be able to
crank up a smelter to temper of an active volcanol,
you need a lot of energy. So historically we've seen
(09:04):
that aluminum refineries and smelterts move closer to places where
they can get cheap energy. And in the twentieth century,
one of the cheap energy sources was obviously hydro electric power.
So you can find in Scandinavian countries, in New Zealand,
in Canada, or countries where mostly there are very reliable
and dependable hydro electric power, we find the aluminum production
(09:24):
moving there as well.
Speaker 1 (09:26):
Now, the way that you've described a plant really doesn't
trigger to me that there is going to be much
of a difference from an energy and intensity standpoint for
raw aluminum versus recycled aluminum. Is there from a production
standpoint a big benefit of using recycled aluminum when we're
thinking about emissions, So there's.
Speaker 2 (09:46):
A lot of benefits there. And from an energy perspective,
if you decided to get your aluminum from a recycled source,
you use fifteen times less energy twenty two times less emissions.
Now that is a big winner if you care about
environment like you and I do. And so what we're
seeing is that companies are actually when they go to
their suppliers, they don't first ask can you produce aluminum
(10:09):
from primary sources? First? For us, they actually want to
know how much talk of recycled aluminum you have, and
I would prefer to buy that first before we talk
about primary So, yes, there's a use case if you
care about the environment for recycled aluminum. But then it's
not just about the energy and then the emissions intensity
that is lower. Let's take a country like China. Last year,
(10:30):
China produced about forty two million tons of the commodity
which is close to about fifty percent of what's produced
last year. What we know in China is that over
the last ten years production has increased quite significantly. However,
Beijing has set a target that you cannot go more
than forty five million for primary production. So China's smelters
and refineries only have three million more of runway in
(10:52):
terms of capacity increase for primary aliminum. So what is
going to happen over the next five years in China
where the largest aluminum is producer, We think that the
switch to secondary aluminum is going to happen quicker and sooner.
Speaker 1 (11:05):
So when it comes to the term green aluminum, is
it predominantly recycled or does it have to do more
with the energy source that's actually powering the facility?
Speaker 2 (11:13):
So green aluminum is actually the end product. So I
would like to say green aluminium is technology agnostic, But
then it's practically difficult, even not impossible, to rely on
primary aluminum in order to achieve green aluminum, because then
it becomes even with secondary even with recycle, it's not
entirely green. You still probably need to rely on some offset.
(11:34):
So I would say that green aluminum the easiest route
if a company is thinking about green aluminum would be
to probably rely on secondary sources which requires less energy,
which requires obviously less associated with less emissions and potentially
cheaper and where you still have some emissions associated with
the supply chain, off sets play a key role in
(11:54):
order to deliver those green aluminum and then we are
seeing that actually happen. I think Apple has established an
off take agreement with Rio Tinto. I think the next
Presso has also made some announcements about using green aluminum
for its cupsules coffee cupsules, So there's a use case
for it, but that is still on the fringes of
the main supply demand market. Hopefully, with time, as policies
(12:16):
that encourages and enforces the emission reduction of the HAW
TWA base sectors come into play, we could potentially see
green aluminum entering the mass market.
Speaker 1 (12:25):
So green aluminum as the end product is going to
be comprised of some recycled materials, and we'll come to
that in a second. Actually what goes into the materials
of the recycling process and what you actually need there.
But how about the energy sources? Because of the energy
intensity you mentioned hydro being one of the main areas
when I think of certain parts of China's grid, I'm
(12:47):
thinking about the access to inexpensive and high intensity coal.
Is green aluminum something that can actually be powered by
renewable energy sources? Or is the energy intensity just too high?
Speaker 2 (12:58):
So because the energy reques it's fifteen times less for
recycled you don't need, it's already heated up. But because
your energy demand is significantly lower that it would be
as compared to primary supply, you realize that the intensity
of energy you would actually need in order to produce
recycled aluminum is way way lower. So that opens up
other energy sources, which is like you rightly mertioned cleaner
(13:21):
and probably cleaner compared to say coal or other sources
for them to be competitive from a cost perspective, but
then most importantly from a reliability perspective in producing the
recycled aluminum that would ultimately become the green alumino.
Speaker 1 (13:34):
Okay, so it's not just the fact that it's recycled
products that really changes the emissions of this, it's the
entire production process. So walk me a bit through that
and some of the things that make recycled aluminum unique
and really what the type of metal is that you need,
because it's not all just the cans that I am
(13:54):
throwing into my recycling bin at the end of the day.
Speaker 2 (13:56):
And for those of us listening, please always remember to
recycle your cans. It plays a very important role in
the supply chain now and more so in the future.
But then to answer your question, there are two sources
of what we call fee stock or mosh scrap where
we get our recycled aluminum from. So number one is
what we call the old scrap. So, like I said,
if you've got can't in your kitchen that you probably
(14:17):
have finished using and looking to dispose, it's an important
fee stock for the market.
Speaker 1 (14:21):
And are they taking scrap out of these cars as
well and out of batteries. It's coming from everywhere precisely,
So this is what you're seeing at a scrap yard
when you drive past it.
Speaker 2 (14:29):
And so there's actually money to be made for those
who collect them, because what these smelters do is actually
they buy them. It's like going to a mine and
digging our box sites. This time you're donating the middle
of a city. So there's actually value in end of
life cast. That's why we call them salvage value. There's
value in there because of the metals that come with
ease dens and what we're seeing is that this old
scrap is going to play a key role in ensuring
(14:51):
that we meet our recycling demand. But there is also
another part of scrap, what we call newscrap, and then newscrap,
which is probably not common because it doesn't have to
do with consumers. It comes from manufacturers. So for every
manufacturing process there's something called scrappage. Human beings are not perfect,
so our machines. So whenever we have to produce a product,
a setain percentage of it would not ultimately end up
(15:13):
going into the final finished product, so we call them scrap.
We put that away. So in the production of aluminum products,
in the products there is also scrappage, so about ten
to fifteen to twenty percent, depending on the efficiency of
the factory or the manufacturer, would go into scrap. So
that scrap is also sold to a recycling company who
would then use that as a fee stock to ensure
(15:34):
that they're able to produce recycled aluminum.
Speaker 1 (15:37):
Now new scrap, this is the leftovers can new scrap,
and I'm going to get really circular. Here, can it
be recycled aluminum but just the leftovers from a different
production process?
Speaker 2 (15:47):
Yes, so all of them go into another smelting and
is melted again. But then the thing is that news
crap has a higher value because it's not contaminated. So
if you think about your cant, first of all, yes
it's an a on can, but then it's quoted with a
logo like for example, I said coca cola or pepsi
or whatever product it is, so that in itself is
(16:07):
a form of contamination that these recycling manufacturers would have
to get rid of. So the preference for most recyclers
is obviously to use if they could get access to newscrap,
that would be great. And then obviously, as manufacturers get
better at their job, the scrappageerate reduces, so you don't
find a lot of that newscrap in the market. And
if you permit me to throw some numbers, last year,
(16:28):
global production of news grap was about fifteen point five
million tonto.
Speaker 1 (16:31):
Is that enough?
Speaker 2 (16:32):
There is not enough newscrap, but of course that is
going to grow. By twenty thirty five, we expect our
market to reach twenty two point seven million, So that's
just shy of eight million increment over the next thirteen years,
whereas oldchscrap, which most of our listeners will be familiar with,
is currently sitting at around twenty three million in twenty
twenty two, but that would rise up to forty eight million,
(16:53):
And like I said, every recycler's dream would be to
get access to the new kind of scrap. But then, hey,
oach crap is not bad as well, given that it
helps lower the emission intensity of the production of alumino.
Speaker 1 (17:06):
So we don't have enough scrap, either old or new,
to meet future demand for what we are thinking about
the aluminum market could potentially look like in the not
so distant future. And I guess the question is really
how do we fix that the couple of ways.
Speaker 2 (17:20):
Number one, we have to increase primary supply, but then
primary supply in areas where obviously you get access to
clean energy sources. Number two, we would have to increase
the recycling, because not all the aluminum that exists in
stock today is actually recycled when they reached their end
of life. And that is why I encourage her consumers
(17:40):
as an example that if you are disposing of anything aluminum,
it's important you take it to recycling in order to
increase the fee stock that will be available for recyclists.
And once we do that, we increase their recycling production
as well. The thirteen, which is an interesting one, is
what I call the power of technology. If we develop
alternatives to our e liminum where there is light weighting,
(18:01):
or vehicles where there is cant As we develop alternatives,
we think that for example, in a base case, if
nothing changes last year, we consume over eighteen million tons
of aluminum on a business as usual trajectory, that could
rise to about one hundred and forty two million data
by twenty forty. That that's a lot of growth. And
like I said, business as usual unless we are either
(18:23):
mining more, recycling more, which probably would not be as
easy as investing in technologies that would reduce our dependency,
so that one forty million by twenty fifty could end
up actually being one hundred million rather than one forty
million as a result in investments in technologies that reduces
our demand for aluminum and then shift that to something else.
And an example is obviously the grid. So if you
(18:44):
take the grid is mostly metals and by grid I'm
referring to those transmission lines you probably see app in
the sky that takes power from a source all the
way down to your homes. And what we've realized is
that the dominant metals are actually copper or aluminum. But
here's where it gets interested. When ropper prices rise very high,
companies tend to switch to aluminum, and eliminum prices rise,
(19:05):
they tend to switch to copper. But this substitution is
purely based on economics. What we should be looking at
in the next generation of consumption, whether it's great or
vehicles or builders, is how can we replace our use
of aluminum with other products in order to reduce the amount.
Speaker 1 (19:21):
So not copper and not aluminum. But if I had
to pick between the two, which has the lower emissions intensity?
Speaker 2 (19:28):
Copper has a lower emissions intensity, but it comes out
of a prices is about three four times more expensive
on a paton basis compared to aluminum.
Speaker 1 (19:37):
So you've definitely established that there is a bright future
for aluminum demand and it doesn't seem to be evading
anytime soon. And I want to know, really, where is
it coming from. Is it entirely vehicles? Certainly not drinking
any more soda on my end, so it's not my fault,
But where is the additional demand coming from going forward
in the next several decades.
Speaker 2 (19:57):
So a Keithan will be the infrastructure for rubble energy.
As energy producers decentralize and obviously invest in solar and wind,
we will need a lot of infrastructure to support the
solars and then the wind turbines and so majority a
big percentage of the growth we expect moving on over
the next twenty years will come from renewable energy infrastructure.
(20:18):
That is number one. Number two is obviously construction. So
what we've realized is that once again governments are enforcing
sustainable ways of putting up, whether there it's some skytscapers
or even just traditional buildings. What we've realized is that
in some countries or in some cities, there is a
soft enforcement and I don't mean hard enforced. By soft enforcement,
(20:39):
governments has hinted that construction companies would need to have
a second look at the emissions profile, and what is
happening is that we're seeing more and more companies shift
to our luminum in the air building infrastructure because potentially
if you use recycled aluminum you are able to reduce
their emissions footprints, so construction will be one of them
in which part of the world to states, and the
(21:01):
third one is the transport industry. Earlier I mentioned how
battery electric vehicles have two options when they want to
increase the performance of the vehicle. You either keep investing
in better batteries that would give for example, American and
use as the range they need, or you can reduce
the weight and the weight of a car an electric vehicle,
you're looking at a one torn beast in terms of size,
(21:22):
so if you can reduce that one torn vehicle, you
ultimately improve the performance without even touching the battery. So
three areas infrastructure to support new energy, build, construction industry,
and then the battery electric vehicle industry would be the
biggest groups demand sectors for aluminum in future.
Speaker 1 (21:41):
Now it seems to me that there is certainly more
demand for green and recycled aluminum, but we're going to
see a good amount of brand new aluminum with need
for box site to be mined. And I want to
better understand even though there's enough of it out there
at least to meet our forecasted future demand, where is
it located and really is available, ability of it in
some way open to geopolitical risk because invariably, if it's
(22:04):
in just a couple of locations in the world, those
countries have the ability to really control the global supply.
Speaker 2 (22:10):
Indeed, and JOSI throw numbers, which I try not to
do often, three countries produce seventy two percent of the
books that we need to produce alumina one, two, three,
just three, So three quarters of aluminamus coming from Australia,
China and Guinea. And you rightly mention that when you
have such few countries controlling a big chunk of the
supply chain, it's exposed to disruption. Last year, aluminum prices
(22:33):
rose to record highs simply because a few months ago
there was a quiditar in Guinea, which is a major
producer of the commodity. Then instantly aluminum producers started getting
consent around will I be able to get access to
the raw materials I need? And that drove prices very high. Now,
if you look at the aluminum supply chain itself, take
(22:54):
an example, Russia controls quite as significant part of the
production through Roussal, and obviously when the war happened, or
began last year and sanctions were imposed on a lot
of companies, and companies self sanction themselves with Russia. What
happened was that overnight aluminum prices spiked up as well,
even though there were no direct sanction on Russia aluminum.
(23:15):
But that is why it's important obviously for governments companies
to help diversify the supply chain in order not to
depend on a few countries. But it gets interesting when
you go up stream, because stop doing that. These metals
are given by nature. No matter how good America gets,
if you don't have it in the ground, you don't
have it. There's nothing you can do about it. But
(23:36):
then there's another option, urban mining. If countries like America, Canada,
the UK, Europe as a whole would invest in making
recycling a big part of the supply chain, then we
would need to depend on three countries for the few
stock we need to produce aluminum.
Speaker 1 (23:54):
So not only is there geopolitical risk, but invariably there
are current policies in place both supporting recycling and decarbonization,
but also changing the way supply chains and trade works.
And one of the things I'm wondering is in the EU,
the carbon border adjustment mechanism. What impact is this having
on aluminum producers?
Speaker 2 (24:15):
So, the way I like you think about it is
Europe's role from a demand supply perspective, compared to countries
like China or the United States, Europe is relatively small. However,
I tend to believe that when Europe coughs, the world
catches a cold. And I use metals as an example
whenever I talk about this, because sea bomb in itself
or the carbon boarder adjustment mechanism might have an impact
(24:37):
on a very small percentage of global production. Once the
EU enforces these kind of policies, it becomes a global
standard and how the country adopt it. So let's unpack
what sea bumbers. So what the European Union is currently
saying is that, look, we've set very high targets for
our local producers, that your emission's profile need to stay
within a certain range. Either than that will put a
(24:58):
penalty on every turn of aluminum you produce. And that's
good news. But then you think about the fact that
at the same time, Europe's border is open to important
aluminum products from countries like China or the United States
or wherever it becomes unfair for domestic producers. So what
the European Union then decided is that to ensure that
we level the playing field, if you are important aluminum
(25:20):
from any third country, we need to know their mission's
profile of that product as well, And if it doesn't
meet the domestic standard we've set and it crosses that threshold,
you would have to pay a carbon tax, so to speak.
So in theory, like I said, it would just touch
just a small percentage of supply, given Europe is not
the biggest demand center. But what I've seen in previous
(25:41):
policies related to metals that came out of Europe is
that it begins to set the global benchmark that other
countries will follow. We're time, I would not be surprised
that China will come up with its own version of SEABAM,
where time I would not be surprised that America will
come up with its own version of SEABAM, which I doubt,
or with time, we would probably see a similar thing
happening in Australia, And for me, that would be the
(26:04):
legacy of SEABAMB, not necessarily the amount of production that
it would currently impact.
Speaker 1 (26:10):
Do you doubt or do you think that it would
happen in the United States see a version of seabam.
Because I heard you say both. You said with time,
it could happen in America, which I.
Speaker 2 (26:19):
Doubt understand sir. America's metals policy has always centered around
national security. Unlike Europe, where it's mostly sustainability driven and
everything else. In America, until it has to do with
national security, there are very little regulations around it. Maybe
in some states like California, but then obviously there's no
aluminum going on in California. At the federal level, I
(26:41):
doubt that America would have the free reign to actually
enforce even emission cups to the largest then or extend
it to a body adjustment mechanism. So if possible, never
say never. If you look at the Inflation Reduction Act,
I never thought that America would actually come to the
table with such a big bang, but here's what they did.
So never say never that it will be a very fastretch.
Speaker 1 (27:04):
Okay, so we've reached watter ignore. Now you as the
lead metals analyst and leading our metals team, I've got
a couple of things for you, and I'm just going
to throw out a word or a phrase and I
want to know if this is something that you are
watching closely at the moment, or if perhaps you're ignoring
it at present, waiting for it to emerge as something
(27:26):
more significant in the future. So you're not saying that
it'll never be important, but right now not something you're
watching closely. So watter ignore boxed drinks replacing canned aluminum drinks.
Speaker 2 (27:38):
Never, that's not preference d.
Speaker 1 (27:44):
It's that cold can that you've taken out of the fridge.
It's just so great.
Speaker 2 (27:47):
Okay, I cannot imagine drinking my BF from a boss.
Speaker 1 (27:50):
But perhaps more relevant to the metals industry in water,
ignore drones for monitoring minds. And then how about blockchain
specifically for aluminum.
Speaker 2 (28:01):
Watch Obviously we've talked about the carbon body adjustment mechanism.
Part of the challenges is really effectively tracking the supply
chain emissions associated with every piece of aluminum that is
important in the EU. And am I not necessarily be blockchain,
but I do believe that technology including blockchain will play
a key role to enabling regulators to monitor that. So
(28:22):
something that we keep in eyes on. We've written about
it a few years ago in terms of how blockchain
or technology from a wider perspective will play a key
role in supply chain tracking.
Speaker 1 (28:33):
Okay, thank you very much for joining us today. Quasy
to talk about this hard to abate space that is
aluminum that we're all watching closely.
Speaker 2 (28:40):
It's always anana to join you, Dana, Thank you.
Speaker 1 (28:51):
Bloomberg ne EF is a service provided by Bloomberg Finance
LP and its affiliates. This recording does not constitute, nor
should it be construed, as investment advice, investment recommendations, or
a recommendation as to an investment or other strategy. Bloomberg
an EP should not be considered as information sufficient upon
which to base an investment decision. Neither Bloomberg Finance LP
(29:13):
nor any of its affiliates makes any representation or warranty
as to the accuracy or completeness of the information contained
in this recording, and any liability as a result of
this recording is expressly disclaimed.
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