Chapter 11: Aluminium

Aluminium is the most abundant metal in the earth’s crust and the third most abundant of all elements, coming after oxygen and silicon. It is, however, a relatively new metal, isolated only in the first quarter of the 19th century by a Danish chemist. Since then, aluminium has come a very long way, and is currently the second most widespread metal after iron, having penetrated several industrial sectors, and having displaced traditional metals, like copper, tin, and iron itself.

Physical characteristics

Because of its reactiveness, aluminium is never found on its own naturally. It forms compounds with a number of other elements, including oxides, hydroxides, silicates, and sulphates. It is, however, chemically difficult – and, therefore, expensive – to extract aluminium from most of these compounds. The commercial source of aluminium is bauxite, an impure hydrated aluminium oxide (Al2O3 = aluminium trioxide), which has been used extensively since antiquity, in its primary form – clay. Even today, some of the best refractory bricks are made from bauxite clay.

Despite knowledge of bauxite, aluminium metallurgy did not commence until the third quarter of the 19th century, and may still have a long way to go. In 1886, Charles Martin Hall in the United States and Paul L.T. Héroult in France, while working independently, discovered the same procedure for separating aluminium from one of its oxides – alumina. They observed that alumina would dissolve in fused cryolite (Na3AlFe6) and could then be decomposed electrolytically to a crude molten metal. The process was later enhanced by K.J. Bayer’s research in the refining of alumina and gave birth to today’s methods of producing aluminium, although modern techniques make much more efficient use of production inputs.

Supply determinants

Bauxite is the raw material used in the production of aluminium; the name denotes any ore that has in its composition more than one-third aluminium oxides. The usual marketable quality of bauxite – the basis grade – contains 40-55% alumina (Al2O3), of which about half can be retrieved as pure aluminium; this implies that it takes about 4-5 metric tons of bauxite to produce one metric ton of aluminium.

The production process is divided into three distinctive phases: mining; refining; and smelting. As for any mineral resource, bauxite has to occur in large enough quantities, in order to be worthwhile mining. Production of bauxite usually takes place in open pit mines, with capacities in excess of one million tonnes, although underground mines are also in operation. Almost all extraction is by giant earth-moving equipment, which digs up bauxite after removing overburden, which may vary from less than a metre to a dozen metres deep.

Most bauxite reserves are located in developing countries, with the notable exception of Australia, which holds just over one-tenth of total world reserves of bauxite. Other regions which are rich in bauxite reserves are: Western Africa, especially Guinea; Southeast Asia, especially Vietnam which has risen to third place in the last few years; Central and South America, especially Brazil and Jamaica; the CIS, especially Russia and Kazakhstan; India; China; and S. Arabia. Exhibit 1 shows the key regions where bauxite reserves are available, while Exhibit 2 lists the key reserve-holding countries.

Production of bauxite has demonstrated an increasing trend over the last twenty or so years. In 2024, an estimated 450 million tonnes of bauxite and ~140 million tonnes of alumina were produced around the world. Around 30% of the global combined production originated in China and another 20% in Australia. In the Americas, production is dominated by Brazil and Jamaica, while African production is almost monopolised by Guinea, who produced over 20% of global bauxite, but a negligible amount of alumina. Other important producers include Indonesia, India, Russia and Vietnam. Exhibit 3 lists the top bauxite producers, while Exhibit 4 shows the location of bauxite mines around the world.

The next stage of supply is refining. Bauxite contains many impurities and cannot be used directly for aluminium production. The raw material must undergo a process of beneficiation, after which it turns into a reddish-brown powdery substance – alumina. Alumina refining typically happens close to where primary aluminium is produced, although there may be exception to this. China, for example, is the world’s largest consumer of aluminium, so it is little surprise that it is also the top alumina producer. Australia and Brazil, on the other hand, export a lot of their production of bauxite and alumina, but also have sizeable domestic production. Conversely, Guinea does not even feature in the list of alumina producers, as all of its bauxite production is simply exported and is refined at facilities owned by the aluminium smelters. 

The most important stage in aluminium production is the third one – smelting. Despite significant improvements, aluminium is still produced with the Bayer/Hall-Héroult method. This method has been refined to yield a final commercial product of at least 99.5% purity, although further refinement to 99.99% purity is also achievable.

There are three main inputs in the smelting process: alumina; cryolite, which is now usually synthetic; and electricity. Smelters are large, continuous electrolytic plants, comprising cells – known as pots – arranged in rows – known as potlines. Like the blast furnace in steel production, the aluminium smelters have to produce a minimum rate every year in order to be operational. A modern smelter has a capacity of not less than 100,000 mtpa, while it can produce perhaps as much as 500,000 mtpa. Electricity in massive amounts arrives at the plant, where it is converted to 1,000V DC at 200-250,000 Amps. A modern smelter would typically require some 13 MWh per ton of aluminium produced. Production takes place in huge cells, where carbon cells – made of pre-baked petcoke – are used as anodes, while the carbon lining of the cells serves as the cathode. The electrolyte is formed by a mixture of alumina and cryolite, and is kept molten by the heat generated by the passage of the electric current. Molten aluminium is formed at the bottom of the cell, as a result of electrolysis, and it is siphoned every 24-48 hours in order to be cast into standard shapes.

As the reader may have guessed, electricity is absolutely central to the smelting process. First of all, it has to be readily available and continuous, as any disruption will cause the electrolyte to solidify, a situation that would take several months of heavy labour to rectify. Secondly, the cost of electricity is the most important production parameter. Alumina accounts for just about 15% of the cost of final aluminium products, with the remaining going to electricity, capital and labour costs. It is not surprising, therefore, that aluminium production costs and final prices are very sensitive to the cost of energy.

After production of pure aluminium, products can be manufactured with the usual methods of drawing, extracting, forging, and rolling. Aluminium products can be formed in many intricate shapes, without any need for further processing.

Primary aluminium production showed an increasing trend through the second half of the 1980s, and stabilised to a total of just over 20 million tonnes worldwide. From 1995 onwards production surged forward to reach 25 million tonnes by 2000. Since then, aluminium smelting capacity and production have been dominated by the massive expansion of China. In the space of just over ten years, Chinese primary aluminium production increased almost sevenfold. No other country was able to match this and, in fact, only very few countries recorded an increase, with the exception of India, the UAE and Bahrain, as can be seen in Exhibit 7.

Exhibit 8 shows the state of affairs in 2024 and one can clearly observe that China produced well over half of the world’s total aluminium. Of the rest, India and Russia are the next two most important producers, with Canada and the UAE following suit. It is notable that the US produces relatively small amounts of primary aluminium; this is because the majority of its production comes in the form of scrap recycling, as can be seen from Exhibit 9.

Another source of aluminium is the recycling of aluminium scrap. In fact, aluminium recycling is a very efficient process, provided that it is used for large enough quantities. This is the reason why secondary aluminium production is usually undertaken by large smelters, rather than small ones.

Because of the large production costs, the firms involved in the production of aluminium found it necessary to undertake extensive vertical integration, from the very beginning. The case of Alcoa – the Aluminium Company of America – is still a textbook case for the study of monopoly in a domestic market. Like Standard Oil, Alcoa’s monopoly was brought to an end by legal action, but the need for large scale, integrated operations has been deeply embedded in the industry’s behaviour.

At the time of writing, there are four major companies, each with a production capacity over 3.5 mtpa[1]; seven medium-sized producers, each with capacities between 0.5-1.5 mtpa[2]; a few Japanese sogo sosha which tend to focus on high end aluminium products (for chemical and computer applications[3]; commodity traders with interests on the mineral side[4]; a few new smelters which are being set up in the Middle East[5]; and a final layer of smaller smelters and  fabricators which operate mainly in domestic markets.

Tarring & Pinney (1996) note three factors that have affected the trend of vertical integration in the aluminium industry: 

• the growth of the independent extrusion business, which allowed smaller specialist manufacturers of aluminium products to thrive and decreased the need for extensive vertical integration; 

• the increasing competitiveness of aluminium in the cable industry, which made the manufacturing of aluminium an increasingly independent operation and led to the creation of smaller aluminium-cable fabricators; and

• the growth of secondary aluminium manufacturing, which brought business back to the large integrated aluminium smelters.

Despite tendencies for a more competitive structure of aluminium supply, the fact remains that the majors still have a considerable weight in the international market for aluminium and continue to be very actively involved in all stages of production, from mining bauxite to manufacturing aluminium alloys.

Demand determinants

As for steel, demand for aluminium depends very much on disposable income. Aluminium is the major input in industries, which are normally associated with countries at an advanced stage of development – like the aerospace and automotive industries. Aluminium, however, has several other more ‘modest’ uses, in which it replaces base metals, like steel, tin, and copper; its cross-price elasticity is, therefore, very important.

The lightweight properties of aluminium make it indispensable for the construction of aircrafts, railroad cars, automobiles, and for other applications where reduction of weight is the most important requirement. Aluminium is also increasingly used in construction as roofing, cladding and siding on factories, agricultural and residential buildings, and in windows, doors and screens.

Another major use of aluminium is in electricity transfers. Strictly speaking, aluminium is about 35% less effective in transferring electricity, but it is also 60% lighter. Compared to copper wires, aluminium wires are thicker, but still manage to be much lighter. This weight advantage makes aluminium more efficient to use when electricity is transferred through bare (overhead) wires, over long distances, because it reduces the number of pylons that would have to be built to support the much heavier copper wires. Aluminium cables are now used to transmit electricity at 700,000 Volts or more; normally, aluminium is stranded on a core of galvanised steel or high-strength aluminium alloy to ensure that cables can be strung in long lengths between towers.

Aluminium has also proved quite popular in the packaging industry, and is used extensively as canning and wrapping material. In fact, it has been so successful that it managed to displace tin as the primary raw material for cans.

Aluminium alloys are also very versatile, offering hardness, corrosion resistance and the advantage of reduced weight in advanced applications. They are used in the defence industry, especially as armour plate for tanks, personnel carriers, and other military vehicles. Alloys are also used in the aircraft and automotive industries, for parts that need to operate under extreme conditions of temperature and pressure.

Aluminium is not the lightest of all metals – lithium, beryllium, and magnesium are even lighter; and magnesium in particular may pose a threat to aluminium’s widespread use. 

For the time being, however, magnesium’s prices remain high, often because its fabricators refuse to be more flexible. Moreover, magnesium is extremely reactive and burns more violently in air, which has inhibited many applications due to fear of fires and explosions.

In a nutshell, if lightweight and strength are vital, aluminium is the answer. In low-value applications it competes with steel, which is cheaper but heavier; in high-value applications it competes with other advanced materials, which are lighter but more expensive.

Trade and pricing

An estimated 25% of world’s bauxite and alumina production is traded internationally, with four countries dominating the export market. The world’s largest exporters are Guinea, Australia and Brazil. In recent years, Indonesia made a considerable impact on the export market, driven by the fast-rising import demand from China, only to pull back with export bans in 2014 and then grow again at a slower pace. China, once again, tops the list of major importers, accounting for nearly nine tenths of world imports. Following at some distance is Ireland, India and Canada. More details on key exporters and importers are given in Exhibits 10 and 11.

Bauxite and alumina constitute the biggest of the minor bulk commodities carried by sea, providing considerable employment for the world’s Panamax and Kamsarmax (post-Panamax) fleet. Seaborne trade in bauxite and alumina has followed closely the development of the industry through the 1980s. After 1985, when the world economy entered its recovery period, trade increased considerably, from 40 to 50 million tonnes. In recent years, with the demand generated by China, the bauxite and alumina trade has grown even more, surpassing 140 million tonnes in 2020, recovering in 2021 and peaking again in 2024.

In aluminium, the picture is quite different. Industrial nations are the main exporters of primary (unwrought) aluminium, lead by Canada, Russia and India, as shown in Exhibit 12. Historically, Russia has been the most prominent exporter, but in 2022 it took a hit following the conflict with Ukraine. As far as importers are concerned, the list is topped by the US, China, Germany, Japan and Malaysia, as shown in Exhibit 13.

The picture changes again when one looks at international trade not only of primary aluminium, but of its finished products as well. Exhibits 14 and 15 record the top exporters and importers, respectively, in terms of value of trade, for 2024.

As we discussed earlier, the industry is characterised by vertical integration, with many smelters having equity stakes in bauxite mining projects. Where this is not possible, smelting companies secure long-term supply contracts with bauxite producers, and then locate alumina refining facilities and aluminium smelters in their own countries.

This strategy found a substantial obstacle, particularly in the mid-1970s, when many producing countries – spurred by the success of OPEC in the oil industry – decided to tighten control on their own production and exports and add value to their final product by expanding their alumina refining operations. This aspiration, however, was hindered by an important shortfall – the lack of adequate capital to invest in mining operations and alumina refining capacity.

On the other hand, smelters had the necessary funds, but could not really maintain control of mining operations, since the technological ‘know-how’ was rather basic and had already been passed on to the host countries. As a result, most smelters decided to channel money into expansion programmes for bauxite, and invest in alumina refining capacity, thus maintaining a secure source of raw material supply.

This inter-dependence between a few smelters (buyers) and a few producing countries (sellers) has created a situation similar to that in the iron ore market. Most business is done on the basis of long-term contracts, with a lack of either a spot market, or of any fairly representative international price quotations.

The situation is quite different for aluminium, however. Commercial aluminium comes to the market in two degrees of purity – 99.5% and 99.7%. It also comes in a number of standardised shapes: standard ingots – usually of 50lbs./piece; sows; T-bars, which are large pieces for mechanical handling – up to one ton each or more; rolling slabs; and billets.[6] The high standardisation of the product, and the existence of a large number of small fabricators and many buyers, creates a competitive environment, and scope for the participation of traders and dealers.

Conclusion

Aluminium is one of the most abundant elements and the most widespread metal on earth’s crust. It is a relatively new metal, but has a wide range of uses, and has replaced a number of other base metals, like steel, copper, and tin, because of its lightweight and anti-corrosive properties. Currently, it is the second most widely used metal, after iron (including steel).

Aluminium smelting is an extremely energy-intensive operation, which needs to take advantage of economies of scale and must be kept in continuous operation. Because of these supply characteristics, aluminium production is dominated by a handful of large, integrated smelting companies, which also have interests in the mining and refining side of the business.

This situation is similar to that of steel, with the difference that the final product here – aluminium – is fairly standardised and is, as a result, traded actively both on spot and futures markets.

References

Desjardins, J. (2015). Aluminum: The Metal Extraordinaire. https://www.visualcapitalist.com/aluminum-the-metal-extraordinaire/

Tarring, T.J. & Pinney, G. (1996). Trading in Metals. 3rd ed. Metal Bulletin. London.

US Geological Survey (2023). Aluminum Statistics and Information. https://www.usgs.gov/centers/nmic/aluminum-statistics-and-information

______ (2023). Bauxite & Alumina Statistics and Information. https://www.usgs.gov/centers/national-minerals-information-center/bauxite-and-alumina-statistics-and-information