In this article, the president of the METEF international exhibition of the aluminium industry Mario Konserva analyses the situation in the aluminium industry in Italy within the European production and sales chain, makes recommendations for how to promote the industry and make it more competitive in the EU, and talks about access to primary raw materials.
Aluminium offers some unique properties, and is an ideal material for a broad range of uses in industry. The metal can be recycled time and time again, which makes it a great choice for sustainable development and a circular economy.
Meanwhile, the aluminium industry is of great significance to the economy, as it produces a number of semi-finished products for which there is great demand in high-tech sectors, as well as cast products, components and parts. One fact that confirms its significance is that last year the production and sale links became the centre of some heated political debate because of the Covid-19 pandemic.
Over the past several years, the structure of the aluminium industry in Europe has undergone some significant changes. Since 2008, the European Commission has been paying special attention to the aluminium added value chain, calling attention to the need for a relevant industrial policy for the sector.
The aluminium industry in the EU
The European aluminum industry (Fig. 1) comprising 2500 companies which make primary and secondary raw materials, as well as semi-finished products - extrusions, rolled and cast products. In 2018, the industry employed a total of 1 mln people, and its turnover exceeded EUR 55 bln (EU + EFTA). The sector is characterised by a small number of alumina refineries, and the number of sites producing primary aluminium is constantly declining. There are thousands of small companies operating downstream, and most of them are not vertically integrated: they employ more than 90% of the total workforce in the industry and account for more than 70% of total sales.
Figure 1
Supply and Demand
Over the past few years, primary aluminium production (Fig. 2) has dropped significantly (-30% since 2008). The supply chain of primary aluminium to the EU largely depends on imports, which is a significant part of the downstream costs - about 50% of all production costs (Fig. 3).
Fig. 2
Fig. 3 - Primary aluminium output in the EU keeps declining
Primary aluminium production localisation has seen significant changes around the world in the past 20 years. China has seen a lot of growth (today it makes about 60% of all the aluminium produced in the world), there's been some growth in the Persian Gulf, whereas North America and the EU have seen their output of primary aluminium decline (Fig. 4). This sort of geographical redistribution reflects the demand for lower energy costs, metal processing and metal transportation. According to the findings of the most recent studies, the number of aluminium smelters in the EU has gone down by 38%, falling to just 16 facilities. Thus, the EU has lost practically a third of its primary aluminium output, and this trend is expected to continue in the near future.
Fig. 4 - Primary aluminium production around the world
Italy, the UK, the Netherlands, Poland and Hungary have seen their output of primary aluminium fall dramatically or even disappear altogether. In the EU, there are only a handful of countries that still have primary aluminium smelters that make the metal in one form or another, such as ingots or some value-added products, such as slabs, casting blocks for presses, foundry aluminium alloys and wire rod. In 2017, Germany, France and Spain were making some 60% of the total primary aluminium produced in the EU, compared with 46% in 2008, when the EU was producing 27% of the primary aluminium it was consuming domestically, and the maximum productivity didn't exceed 31%. Today, because of smelter closures, the situation has become even more challenging. You can get an idea of what the European aluminium production and sale chain looks like globally by looking at pre-pandemic data.
In 2017, globally 78 mln tonnes of metal were going into the production of rolled, cast and extruded products, and in 2012-2017 this amount had grown by 33%.
The aluminium industry in Italy
The aluminium production and sale chain has been developing constantly since the beginning of last century. According to studies conducted by Centroal - Assomet (the Italian Association of Non-Ferrous Metal Production), in 2020 the country's aluminium industry comprised some 500 production and processing companies, employing over 16,000 staff, with an annual turnover of non-processed metal and primary processing in excess of EUR 9 bln. The country hasn't had primary aluminium production for several years now, but it's got 40 facilities that process and remelt aluminium, 43 press shops (with a total of 90 presses), 13 rolling mills, and more than 400 casting companies. The total amount of aluminium and aluminium alloys consumed depends on the supply chain: after a relative maximum of 2.1 mln tonnes in 2017, it went down to 1.85 mln tonnes in 2020 as a result of the pandemic (according to Centroal - Assomet).
Fig. 5 - Amount of non-processed aluminium and aluminium alloys used in Italy
Per capita consumption of aluminium is more than 30 kg per year. Figs. 6-12 show the trends over the past several years in such sectors as extrusion, rolling and casting. As for rolled products, since 2010 there has been an increase in output from 326,000 tonnes to 610,000 tonnes in 2019 (production, imports, exports and consumption see Fig. 6). Imports and exports totalled 280-300,000 tonnes, while total consumption reached 550,000 tonnes. Fig. 7 shows the extruded products output since 2010 (770,000 tonnes). It went down in subsequent years, followed by a gradual recovery that started in 2015 (565,000 tonnes).
Fig. 6 - Rolled products market in Italy
Fig. 7 - Extruded products market in Italy
The changes in exports and imports of extrusions were minor, the domestic demand was significantly lower than expectations, at 420-430,000 tonnes, as a result of a stagnation in construction. Figs. 8 and 9 show the number of extrusion companies in the country and their theoretical capacity.
Fig. 8 - Extrusion equipment in Italy
Fig. 9 - Extrusion capacity in Italy (1975 - 2020)
Fig. 10 shows foundry alloys. The total output was 570,000 tonnes in 2020, which saw a decline compared with 2017 (743,000 tonnes) and 2019 (700,000 tonnes). The share of the transport sector depends on the development of casting technologies, where high pressure die casting makes up more than 75% of the total, casting into shaped forms makes up 19%, and the rest is casting into sand. A&L magazine estimates that only about 30% of casting blocks were made from primary alloys.
Fig. 10 - Market of foundry alloys in Italy
The production chain supplies raw materials to important sectors of the national economy, such as machine engineering, the automotive and transport sectors, construction, packaging, electronics, design and many others (Fig. 11).
Fig. 11 - End consumption of aluminium in Italy
At the same time, the transport sector is one of the largest consumers of aluminium - it accounts for more than 40% of the total annual aluminium consumption in Italy. Aluminium and aluminium-based alloys are the ideal choice for the manufacture of automotive components and body parts for urban transport, because aluminium allows automotive companies to easily reduce vehicle weight and save energy.
Such unique characteristics allow aluminium to be widely used in packaging solutions: its homogeneity makes it possible to minimise thickness, while its plasticity allows aluminium foil to wrap around any type of product with ease. Aluminium alloys are used to produce strong, light and safe transport containers. Other benefits of aluminium and aluminium alloys include conformity with the circular economy and sustainable development principles, and the fact that aluminium can be recycled endlessly. It's a well-known fact that aluminium is 100% recyclable, and recycling it saves 95% of the energy needed to produce primary metal.
Trade policy and support in the EU
A rather complex system of trade tariffs is used for processed and unprocessed aluminium products. The introduction several decades ago of trade tariffs on unprocessed products was dictated by the need to prevent EU aluminium smelters from cutting back their production or even closing (Figs. 12-13).
Fig. 12 - Trade tariffs on unprocessed aluminium in the EU in 2020
Fig. 13 - Customs codes for unprocessed aluminium and other products
As we can see, the EU's tariffs on unprocessed aluminium has been a rather ineffective measure to support the production of primary aluminium in EU member states. The output of primary aluminium fell significantly as smelters cut back their production or closed up shop — in the future the trend towards less investments in aluminium production is expected to continue. As the trade tariffs were kept in place, a significant reallocation of resources occurred (according to a study by Luiss University, some EUR 17.8 bln between 2000 and 2017) from the producers of semi-finished aluminium products to the producers of unprocessed aluminium based in the territory of the EU and in countries that have reduced customs tariffs agreements with the EU (Fig. 14).
Fig. 14 - Additional customs expenses for the downstream resulted in a hidden subsidy effect for producers, both in the EU and outside of it
This kind of reallocation of resources offers a hidden benefit for upstream companies. Meanwhile, small and medium sized downstream companies suffered more than vertically integrated companies and companies that have got long-term relations with end consumers.
Industrial policy for the aluminium industry in the EU
Analysis of the aluminium industry in the EU and in Italy makes it clear that the main competitive advantage they have got lies in the technology used in the downstream segment. Downstream producers make use of know-hows, introduce innovations, improve product quality, while also ensuring its environmental friendliness.
Downstream companies make a contribution to the socio-economic development in local communities, where they are often the largest employer. Over the long term, support is needed to allow companies that make semi-finished aluminium products to maintain their leading positions on the market. Customs duties on primary aluminium artificially drive up the expenses of downstream producers, while no measures are put in place to support upstream production. Lifting duties on primary metal would be the first step towards relaunching the aluminium industry in the EU. Lifting duties would not be a major intervention, but it would produce a fast effect and is in line with the principles of the European Commission aimed at stimulating an economic recovery after the Covid-19 pandemic.
Aluminium consumers have for a long time now been asking to lift the unwarranted duty because it's being applied to a product which is in short supply in Europe and is thus having a negative impact, as it is discouraging companies from outside the EU from meeting the ever increasing demand for the metal in Europe. The duty is genereally regarded as destructive, as it thwarts competition. In effect, instead of protecting the industry, this duty is a source of market distortion through hidden subsidies for a number of privileged categories of companies at the expense of other industries.
Instead of subsidies, support programmes should be developed to expand the uses of recycled aluminium. For example, this could be achieved by supporting innovative waste sorting and separation technologies, as well as by encouraging the recycling and reuse of products made in the EU from recycled materials.
About Mario Konserva
Mario Konserva has been in the aluminium industry for more than 60 years. The president of the METEF international exhibition, the CEO of the A&L aluminium magazine (published since 1988), since 1998 he has also been the general secretary of the European Federation of Aluminium Consumers (FACE). Previously he sat on the Board of Directors of the European Aluminium Association and was the chair of Assomet-Centroal — the Italian Association of Non-Ferrous Metal Production Companies.