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