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Aluminum production in Siberia:
The metal is becoming scarce worldwide
Photo: REUTERS
"The situation is dramatic," says
Marius Baader
.
"The prices for magnesium and aluminum have already risen exorbitantly. The supply situation is already extremely difficult today, with the risk that the situation will become even more difficult in the coming months."
Baader is the managing director of the Association Aluminum Germany eV, in which local aluminum companies have come together. What he describes is a new variation of the phenomenon of shortage economy that has been emerging for some time, which is troubling companies around the globe and especially in Germany: the increasing shortage of magnesium on the world market, and with it the increasing shortage of aluminum, which is used as a material in almost all areas of the manufacturing industry to an ever greater extent.
The background is a decision made by politics in China: Because the People's Republic is also increasingly focusing on climate change, the activities of coal-fired power plants in the country have been restricted - at the expense of many industrial companies. In particular, the country's magnesium production almost came to a standstill at times. And the entire global economy is feeling this primarily in the form of an increasing shortage of aluminum. After all, with a market share of almost 90 percent, China is by far the largest producer of magnesium in the world, and magnesium is urgently needed as a component of many aluminum alloys for the production of the light metal.
"The dependence of the global magnesium supply on Chinese exports is very high," said a 2019 study by the German Raw Materials Agency, which is part of the Federal Ministry of Economics.
In addition to China, only Israel was a net exporter on the world market at that time.
"All other production countries need more magnesium than they produce themselves."
According to the German Raw Materials Agency, Germany is the most important user of magnesium within the EU.
Globally, only China, the USA and Russia need larger quantities of the material than Germany.
Car manufacturers especially affected
No wonder, then, that the head of the association, Baader, sees Germany in a particularly difficult situation in the current bottleneck. "The outlook for 2021 is dramatic," he says. "Long-term contracts for magnesium deliveries in 2022 are already hard to come by. In any case, there are no guarantees for delivery, given the great uncertainty in the market." In the near future, the problem will increasingly spread to the manufacture of end products such as cars, window frames or food packaging, according to the industry expert. "At some point, products may no longer be able to be delivered."
This is reminiscent of the chip crisis that has been affecting car production in Germany for months. Manufacturers like Volkswagen or Daimler have already had to introduce short-time work or stop production at times because they lacked the necessary semiconductor chips. So is such a scenario also imminent due to the increasing shortage of aluminum? "It would be naive not to count on it," said association boss Baader.
"We will definitely get a break in the magnesium supply," says
Lars-Peter Häfele
, raw materials expert at the consulting firm Inverto, which specializes in supply chains. "The Chinese government already has export restrictions. And it is still completely unclear how long the shortage will drag on." Häfele is also already feeling the effects of the looming crisis in its day-to-day work. "Suppliers no longer submit bids in tenders because they are unsure whether they will be able to serve new business in the future," he says. "Some of our customers actively approach their suppliers and try to understand how big the problem is that they are facing."
Pretty big, apparently. The reason that Germany of all places is so dependent on magnesium from China is primarily due to the strong automotive industry in this country, the branch with the highest aluminum demand. "Because of the strong auto industry, Germany is more affected by the aluminum problem than many other countries," confirms Häfele. "In Germany, 47 percent of aluminum goes into vehicle construction, in other countries only about 23 percent."
Background: Aluminum is increasingly used as a material in many different industries and production processes.
Germany produces more than a million tons of the light metal annually, with the magnesium required for this being obtained almost exclusively from China.
In the local industry, however, more than three times the amount of aluminum is used, which is why most of it has to be imported.
"Permanently a latent problem"
The main user of aluminum in Germany is the automotive industry, which accounts for almost 50 percent of total consumption.
150 kilograms of aluminum are in a conventional car, and in an electric car it is even up to 600 kilograms.
Car manufacturers use aluminum in bodies, chassis, engine blocks, gearboxes, tailgates, doors, rims, cylinder heads, wheels and much more.
"The magnesium bottleneck is currently having an impact on the entire aluminum value chain and all of the industries associated with it," a spokeswoman for the VDA said on request.
"Companies in the automotive industry are currently analyzing their supply chains with the aim of ensuring supplies."
But other industries are also increasingly using the metal, such as the construction industry for house doors, windows, winter gardens and others, the food industry, for example for packaging, or electrical engineering and mechanical engineering. They all take advantage of the numerous advantages of aluminum: The material is light, which in many applications reduces energy consumption and costs. It is resilient and has a long lifespan. In addition, aluminum is heat and cold resistant and has no taste of its own - properties that are particularly advantageous in the production of packaging for food.
There are bright spots in the supply situation: most recently, China has allegedly ramped up magnesium production, at least in part, according to reports. In addition to the magnesium price, the aluminum price also fell slightly in the recent past after plans to cap the price of coal and to expand coal production became known in the People's Republic. For orientation: from April 2020 to mid-October of this year, for example, the price of aluminum had more than doubled to well over $ 3,000 per ton - it is the highest level in more than ten years.
However, it seems questionable whether the recent relaxation is a cause for joy.
"The energy
shortage
in China will remain a permanent problem in the coming months," says
Daniel Briesemann
, raw materials
analyst
at Commerzbank.
In his opinion, energy for industry in the People's Republic is likely to be cut back again and again during the winter so that the population can heat sufficiently.
According to the expert, the subject of CO2 emissions from coal-fired power plants will hardly disappear from the scene again.
The industry must therefore expect problems with the magnesium supply in the long term.
Has politics failed?
According to the head of the aluminum association, Baader, it is not only politics in China that are to blame for the misery, but especially those in Berlin.
In the past, the federal government has done nothing to counter the increasing dependence of the German economy on supplies of magnesium from the Far East, he says.
The European Aluminum Association, European Aluminum, has a similar view.
Together with various other industrial associations, the association sent an "emergency call" to politicians a few days ago and called for measures to be taken against the immediate risk of Europe-wide production stoppages as a consequence of the magnesium shortage on the part of China.
Without immediate intervention by the European Union, thousands of companies in Europe, their entire supply chains and millions of jobs would be threatened, according to the associations.
An appeal that the local auto industry is apparently joining: "The European Commission and the German government must now work together with China, the most important magnesium exporter, on measures to remedy the bottleneck," said the spokeswoman for the VDA. "In addition, Germany and Europe need a long-term industrial policy strategy to secure access to important industrial metals."
The crux of the matter is that magnesium is found in many countries around the world, such as Russia, Turkey and Australia.
It would take years, however, until dismantling capacities could be built up there, to which local customers could switch.
The best example is a magnesium mine that is currently about to go into operation in Romania.
"Even if the green light for the start were given there today, the mine could not start producing until 2025 at the earliest," says aluminum association chief Baader.
That means: In the next three to four years, the German economy will definitely still be dependent on magnesium deliveries from China.
There is simply no alternative, no matter how much the aluminum crisis will worsen in the near future.
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