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Aluminium supply shutting down as demand set to rise

  • global aluminium demand forecast to rise by nearly 40% by 2030
  • Europe expects “staggering” 50% loss of primary aluminium production capacity
  • production process for aluminium is incredibly energy intensive and carbon heavy
  • for investors, future of aluminum market will be in the energy transition

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Aluminium prices spiked to 30 year highs in March this year and, despite falling back, are still at 20 year highs. We expect significant volatility in the market over the next few years, but prices will stay high in the long-term as structural demand rises.

Aluminium price 1 - The Oregon Group - Investment Insights

Global aluminium demand is forecast to rise by nearly 40% by 2030 — the highest of any other metal, according to the World Bank — with production needed to increase from 86.2 million metric tonnes (Mt) in 2020 to 119.5Mt by the end of the decade. This demand will be driven largely by carbon-free transport, energy and infrastructure — aluminium is a critical metal for electric battery packaging, cathodes in lithium batteries and hydrogen fuel cells, as well as the construction of wind turbines and solar panels.

Aluminium semi finished product consumption 2020 vs 2030 Mt - The Oregon Group - Investment Insights

Aluminium is the second most abundant metallic element in the Earth’s crust after silicon and the aluminium industry is the world’s second largest metals industry. Yet, rising energy costs and climate change means it’s increasingly difficult to buy.

The immediate problem is aluminium smelters shutting down due to high energy costs, especially in Europe where energy costs have increased as much as 400% — an acute problem for an industry where energy account for 40% of costs. For example:

  • the largest aluminium plant in Europe, Aluminum Dunkerque Industries France, is cutting capacity by 22%
  • Speira is cutting production at its Neuss aluminium plant in Germany by 50%
  • Romanian company Alro has reduced prodcution by 60%
  • Slovenia company Talum is cutting production by 20%
  • Alcoa Corporation has announced a shutdown of over 30% of production at its Lista smelter in Norway, as well as a two-year shutdown of it’s San Ciprian smelter in Spain

European Aluminium expects a “staggering loss” of 50% of the region’s primary aluminium production capacity. Production in Europe is already at it’s lowest levels since the 1970s and may well get worse as energy costs rise over winter.

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Aluminium is very energy intensive to produce, and any interruption to the power supply longer than two hours risks leading to the solidifying of the metal in the smelting pots and the possible destruction of the entire production line.

Unless Russia turns back on the gas pipelines to Europe, it will take years for Europe to make up the shortfall (our analysis on rising natural gas prices in Europe) and put a lid on energy prices. Some of the damage done to Europe’s aluminium industry may well be permanent.

“As one of Europe’s most exposed industries, we need much more relief from the exorbitant gas prices to keep our factories open. We’re extremely concerned about the survival of the aluminium industry in Europe and are worried that these proposals do not reflect the urgent need to support a critical industry like aluminium”

— Paul Voss, European Aluminium’s Director General

It’s not just Europe

In China, the world’s largest producer of aluminium (accounting for nearly 60% of the market), lockdowns after Covid outbreaks across the country have disrupted logistics and transport, for example in the city of Baise, know as the “aluminium capital” of China, locked down at the start of the year. And, in Sichuan and Yunnan province, authorities have ordered the regional aluminium industry to reduce their power usage by at least 10% after low rainfall reduced the region’s hydroelectric energy supply. Yunnan province accounts for over 12% of China’s aluminium production capacity and there are reports the rationing may expand to 20-30%.

In India, the world’s second largest aluminium producer, the industry is being hit with rising energy costs, just as it is trying to emerge from a national coal shortage that hampered production last year.

Russia, the third largest aluminium producer in the world, has avoided sanctions on it’s aluminium exports by the US and Europe after its invasion of Ukraine but some major buyers, such as Novelis (one of the world’s largest buyers of aluminium), have unilaterally decided not to buy from Russia for 2023. And, shortly after Russia’s invasion of Ukraine, Australia banned exports on alumina and bauxite exports, the two most essential ingredients for producing aluminium, to Russia.

In the US, high energy costs forced Century Aluminium, the largest primary aluminium producer in the US, to shutdown its smelter in Kentucky, the largest facility for military-grade aluminum in the US. As US natural gas prices rise to match demand in Europe and Asia, more pressure will be put on the country’s aluminium industry. (our analysis on US LNG exports to meed global demand)

The closure of all these facilities across the globe is a longterm problem as production lines can take up to nine months to restart.

LME primary aluminium stocks breakdown - The Oregon Group - Investment Insights

In August of this year, aluminium inventories with the London Metals Exchange (LME) fell to a record low (compared to data going back to 1997). 

The slack in the system is extremely tight. 

Short-term vs long-term

For now, it seems, concerns over falling short-term demand are stopping the slack from snapping and prices rising dramatically.

Concerns over a looming recession in the West due to high energy costs, inflation and rising interest rates, as well as a slow down in the Chinese economy, mean expectations are for weak demand in the short-term.

Perhaps the best evidence for such a slowdown is an 11% jump of LME inventories in September from August levels.

And China, despite the power rationing in some regions, has produced 26.47 million tonnes of aluminium in the first eight months of 2022, a rise of 2.1% from the same period last year. New capacity from regions like Guizhou and Inner Mongolia has offsett the reduction in areas like Yunnan.

This has meant Europe is turning to Russia and China to fill the gap.

aluminium imports russia china europe - The Oregon Group - Investment Insights

But, when economic concerns lift, there is a problem in using Chinese and Russian imports to try and meet demand — climate change.

The production process for aluminium is incredibly energy intensive and, in turn, carbon heavy. Long-term demand will be for aluminium made with “clean” energy. Yet, an estimated 80% of all energy used to create aluminium in China is currently from coal, making up 5% of China’s total emissions. In Europe, by comparision, the carbon intensity of its production has been cut by 50% since 1990, almost one-third of China.

There are reforms underway to clean up the China’s aluminium production including moving production closer to hydroelectric plants in the south east, as well as nuclear and green hydrogen investments, but as countries and companies in the West are increasingly on the hook for Scope 3 carbon emissions (our analysis on SEC’s new carbon ruling for US businesses), many companies will prefer to pay a premium for “clean” aluminium from elsewhere.

Aluminium semi finished product consumption 2020 vs 2030 Mt 1 - The Oregon Group - Investment Insights

For investors, the future of the global aluminium market will be those who embrace the energy transition. To meet the Paris Agreement climate goals, the aluminium industry will need to reduce its carbon emissions from over a billion tonnes to fifty million tonnes by 2050. Yet, the lowest carbon aluminium on the market can only meet up to 30% of current global demand.

So, where should investors look for growth?


Rio Tinto (ASX: RIO), a major global mining player, has 14 smelters from Canada to Australia, New Zealand to Oman. They saw an increase of 31% in gross product sales for aluminium in H1 2022. Claiming their carbon intensity to produce aluminum is one-fifth of the industry average, and they have set goals to further reduce Scope 1 and 2 carbon emissions by 50% by 2030.

Aluminum Corporation of China, or Chalco (HKG:2600), took control of Yunnan Aluminiium Ltd this year, which analysts said could make it the world’s largest listed aluminum producer — offering exposure to the moves on the enormous Chinese market.

Alcoa (NYSA:AA), based in Pittsburgh but with the majority of it’s operations outside the US, 80% of its electricity comes from renewable sources, and is working on reducing its carbon footprint further.


Physical aluminium is not avilable as an investment asset in a similar way to gold or silver, but investors can gain exposure through ETFs, including: 

  • iPath Series B Bloomberg Aluminum Subindex Total Return ETN (JJU), mirrors returns potentially available through an unleveraged investment in aluminum futures contracts
  • WisdomTree Aluminum (LSE:ALUM) is an exchange-traded commodity designed to enable investors to gain an exposure to a total return investment in aluminium by tracking the Bloomberg Aluminum Subindex plus a collateral return

Carbon Credits:

In order to alleviate carbon emissions, many aluminium companies are turning to carbon credits as an essential part of their carbon neutral strategies. For example, Rio Tinto have announced a new carbon offsets team with carbon credits and carbon removal “expected to form a limited part of our decarbonisation strategy.”

Carbon Streaming Corp (NEO: NETZ) is a Canadian company using streaming financing to support carbon credit project developers. It was one of the first publicly traded carbon offset investment companies in the world, and has a series of new carbon partnerships coming online.

A new Carbon Strategy ETF (NYSE:KARB) has also been launched that provides investors with exposure to the global compliance carbon credit markets, which have grown from USD$220 billion in 2018 to USD899 billion in 2021.

There are private companies offering exposure, some of which have announced their intention to list later this year, such as Canadian entrant Carbon Streaming

Read more on our introduction to carbon credits.

The Oregon Group will be watching this market closely, stay subscribed.

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about the author

Picture of Anthony Milewski

Anthony Milewski

Anthony Milewski has spent his entire career in the capital markets, including as company CEO, board director, advisor, founder and investor, with a focus on the energy transition and commodities.


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