Challenges Facing the Aluminum Industry

Drivers and Dynamics

Market Volatility

With a projected growth rate of over 5% per year, the aluminum industry has seen a lot of changes over the last few years. However, this industry still faces many challenges businesses must overcome to continue growing.

Aluminum prices are volatile, making it difficult for buyers to plan their manufacturing costs. While the main reason for this instability involves aluminum’s dependence on natural resources, other factors can make prices even more unpredictable:

Energy and raw material costs: Aluminum production and transport requires large amounts of electricity and fuel. Resource costs affect the price of the aluminum, as do labor expenses and other production-related factors.
Increasing demand: Combined with a reduction in bauxite inventories, the market for aluminum rises faster than supply in some regions.
Production capacity decline: When the price of aluminum drops below production costs, some producers and smelters must reduce outputs, resulting in supply shortages.
Geopolitics: Geopolitical issues such as war or trade sanctions directly impact prices by disrupting supply chains or causing uncertainty among consumers, making them reluctant to buy products from specific regions.

Fortunately, companies can mitigate many volatility risks by:

Employing commodity collars to lock in prices for future deliveries.
Using historical insights to reveal volatile market risk indicators.
Exploring innovations for bauxite extraction, aluminum processing and trade logistics to minimize risk.
Understanding how tariffs and other political factors may affect future production.

Environmental Concerns

Between policy reform, sustainability efforts and recycling, the aluminum industry has made giant steps toward mitigating the material’s environmental impact. Recycling aluminum alone conserves natural resources by keeping products out of the waste stream and reducing the need to extract raw materials, and it’s incredibly feasible — approximately 75% of all aluminum ever produced is still in use today.

However, the current environmental impacts of aluminum production still include:

Greenhouse gas emissions from transportation, electricity use and coal combustion.
Water pollution from chemical discharges.
Soil degradation through deforestation.
Air pollution from gaseous emissions.
Waste disposal issues related to mining operations.

Although many countries face the challenge of balancing economic growth with environmental sustainability, a renewed focus on utilizing emerging technologies to improve productivity and reduce waste has emerged, particularly with regard to aluminum production.

Competition From Other Materials

Aluminum is a renewable, infinitely recyclable material used across industries to meet the demand for more sustainable products. Between aluminum’s unique properties and its producers’ focus on greener practices, the aluminum industry has stayed competitive with other materials, including:

Plastic: Though it’s cheaper and easier to process than aluminum, plastic has a lower melting point, less durability and mediocre recyclability.
Steel: Aluminum has a higher strength-to-weight ratio and malleability ranking than steel, though steel is denser.
Glass: Although glass and aluminum reign as popular and recyclable packaging materials, glass is fragile and less efficient to transport.
Copper: While copper boasts greater conductivity and stiffness than aluminum, it generally comes at a higher cost.

Trade Restrictions and Tariffs

The aluminum industry is a global market, with many countries producing and exporting the metal. However, trade restrictions and tariffs can complicate these processes, potentially leading to:

Increased domestic output: When tariffs are placed on imports, a country’s domestic output may increase. As imported aluminum prices rise, demand for the foreign product declines, allowing domestic producers to capture more of the market.
Reduced global supply: Sanctions on aluminum-producing countries have significantly impacts on global supply by causing price spikes and creating shortages of the metal in some countries.
Stunted exportation: In the past, trade restrictions reduced business opportunities for those selling goods or services abroad, leading to less competition, higher prices, fewer jobs and slower growth rates.

To deal with the challenges associated with trade restrictions and tariffs, many aluminum producers choose to:

Diversify their supply chain: By sourcing materials from countries with favorable trade agreements, many companies insulate themselves from unnecessary costs and risks.
Get involved in advocacy efforts: When companies make their voices heard on matters related to tariffs, trade policies and other issues that affect business, they can help shape the future of trade.
Hire an expert: Consulting an expert specializing in these topics illuminates the best ways to approach these hurdles legally.

Energy Costs

Producing aluminum is highly energy-intensive because the process involves electrolysis, which relies on a constant supply of electricity and water. Energy price fluctuations affect every part of the aluminum industry, from transportation costs to manufacturing processes to consumer spending habits.

In general, when energy costs are low, players in the aluminum industry can produce at lower costs and still make a profit. However, when energy costs increase, production costs do too, and companies must either raise their prices to compensate or absorb the additional expense.

Historically, aluminum producers have responded to price spikes through measures like:

Seeking renewable alternatives to electricity and natural gas.
Improving recycling efficiency.
Optimizing process flow.
Using more efficient equipment or processes to keep costs down.

Emerging Technologies and Materials

Despite aluminum’s long history of use in the manufacturing industry, it faces competition from emerging materials like new alloys, graphene and metamaterials. Some of these new competitors boast unique and highly desirable properties, such as graphene’s extreme conductivity and strength and certain plate-lattice metamaterials allowing rapid production through 3D printing.

Emerging technologies and materials present many opportunities for companies to reduce waste, create products with a longer life span or better performance than current designs, and improve the safety of their offerings. However, these new substances may prove less reliable than current materials under further testing. The aluminum industry can best handle these challenges by:

Keeping up with the latest developments. Reading trade journals, browsing industry market analyses and attending conferences are critical strategies for adapting to change.
Being open to change. Aluminum producers must be flexible enough to adopt new technologies and materials to stay competitive.
Doing research before adopting any new technology or material. Consulting with experts will provide value and insight into the safety of new materials and processes and how quickly they may be viable.

Access HARBOR Aluminum’s Market Intelligence Reports

The future of the aluminum industry looks bright as the market shifts to a new era of innovation and growth, driven by the demand for lighter, more robust materials and the need to reduce carbon emissions. HARBOR Aluminum’s Market Intelligence Reports provide insight into these trends so you can make better decisions about your company’s future. Gain access to these reports today!

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