New auto trends likely boost for Jamaican mining
Published:Friday | July 29, 2011 | 12:00 AM
Aluminium industry executives are projecting that the amount of aluminium used in cars will double by 2020 as automakers turn to the lighter metal to replace steel in order to meet increased fuel-economy standards.
In the United States, higher oil prices and tougher carbon-emission regulations have spurred the authorities to require automakers to raise the average mileage of the fleets of vehicles they produce from 23 miles per gallon to 34 miles per gallon by 2016.
Further, there are indications that current negotiations between the Obama administration and automakers are likely to establish an even stiffer standard of 54.5 miles per gallon by 2025.
To make this steep climb, automakers will have to significant cut the weight of vehicles so engines have lighter loads to move.
Because aluminium is one-third the weight of steel and as strong and crash-worthy, it is a prime candidate to replace steel parts which now make up more than 60 per cent of the weight of the average car.
This is good news for aluminium companies and bauxite-producing countries such as Jamaica which has for nearly 60 years, been a leading exporter of raw materials - bauxite and alumina - that go into the production of the metal.
In late 2008, the industry plunged into its worst crisis since the Great Depression reflecting the downturn in economic activity. As aluminium prices collapsed from over US$3,000 per tonne in July 2008 to US$1,360 by yearend, there was widescale closure of aluminium smelter capacity and alumina plants and, in Jamaica's case, alumina output declined by nearly 60 percent in 2009 to the lowest level in over 20 years.
Recovery was under way by the last quarter of 2009, and in 2010 the international industry saw an uptick in demand for metal from major markets such as the automobiles, electronics and the aerospace industries.
In fact, aluminium demand increased by 14.3 per cent last year albeit from a low base in 2009.
The primary aluminium price also moved up sharply from an average of US$1,665 per tonne in 2009 to US$2,173 in 2010 boosting the revenues and profits of the leading companies.
Jamaica's alumina output declined by 9.2 per cent in 2010 after a 55.6 per cent drop in 2009, but with the re-opening of Windalco's Ewarton plant in the second half of last year production picked up in the early months of 2011. The Kirkvine refinery and the Alpart plant, the island's largest, remained closed.
Aluminium consumption
Based on the recovery in demand for existing end-use products and the anticipated new uses through the replacement of steel and copper, some analysts are forecasting that aluminium consumption could grow by up to 7.6 per cent per year over the coming five-year period. For example, aircraft orders received by leading manufacturers - Airbus, Boeing - are projected to lead to a 14 per cent increase in deliveries this year, and aluminium usage per unit is expected to go up by 3.2 per cent.
Aluminium has made big gains in the automobile industry since the US federal government first introduced fuel-economy standards in 1975, in the wake of the oil price shock of 1973.
After initial setbacks, aluminium has now surpassed steel as the main metal in engine blocks of vehicles and is now used in 70 per cent of cars. It also displaced steel as the material of choice for wheels accounting for 70 per cent of that market, and five years ago overtook cast iron as the number two metal used in cars.
According to some presenters at the recent Aluminium Summit in New York, aluminium's growth potential could, however, be tempered by rising energy costs as it is the second-most intensive user of energy in its production process.
This is likely to be an important factor in the future growth of production in China, which moved rapidly in the last decade to become the leading producer in the industry.
Europe, the main market for Jamaica's alumina exports, is projected to continue losing ground with further closures of smelters as energy prices rise.
In the meantime, emerging energy-rich countries in the Middle East, and some producers in the Asia-Pacific region, are being viewed as the leading growth points in the industry in the period ahead.