Today's Aluminum Industry: Facing the Economic and Environmental Challenges David Morton

Editor's Note: This article is distilled from the author's state­of-the-industry address, which was delivered to attendees of the Aluminum Association's annual meeting. The trade association's meeting was held September 9-11, 1992, in Greenbrier, West Virginia.

Currently, the world aluminum in­dustry is operating in an uneasy price limbo, at levels that are too low to make healthy profits, yet apparently not low enough to induce the closure of high­cost primary aluminum capacity and redress the current imbalance of supply and demand. It is, of course, true that a number of smelter closures were an­nounced in the latter part of 1991. These totalled about one million tonnes per annum, but much high-cost capacity re­mains in production, the industry's over­all operating rate is 94 percent, and in­ventories continue to rise.

A major contributor to the rise of the world inventories was the sudden ad­vent of increased exports from the Com­monwealth ofIndependent States (CIS). In 1991, compared with 1990, net im­ports from the Eastern Bloc increased by about 500,000 tonnes; Western produc­tion also rose by about the same amount. Thus, each contributed roughly equally to that year's surplus problem. In 1992, however, Western production looks likely to be marginally below that of 1991, as cutbacks offset new capacity. The CIS, therefore, will be responsible for this year's increased inventories.

Many things can happen in the CIS, both politically and physically, to alter the supply picture; on balance, CIS ex­ports seem likely to continue near 1991' s level of 900,000 to one million tonnes per annum. In the long run, of course, the development of the CIS domestic mar­ket will absorb an increasing proportion of this production, and it is in the alumi­num industry's interest to provide the technology and assistance necessary to help develop these end-use markets. It will, however, take time to build con­sumer demand and marketing struc­tures. Nevertheless, the current low per capita consumption of aluminum in the CIS, coupled with a population greater than that of the United States, offers exciting growth prospects. At present, if there were to be a major interruption in Russian exports, the world market would

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move into a balanced or even a deficit supply position.

In China, the economy is showing signs of taking off. The country's industrial production grew by 18 percent in the first half of 1992. China is now buying aluminum, and its 1992 purchasing re­quirements may approach 200,000 tonnes. China could constitute a new and growing element of world demand in the near future. As with the CIS, the world industry should endeavor to help develop China's domestic market.

Looking at current demand, it can be described as patchy. There is still only, at best, a hesitant recovery in North America. There are problems in Europe

For the aluminum industry and recycling, the price of success is persistent promotion­particularly promotion of the real and solid advantages that aluminum has to offer.

as the United Kingdom is in recession, Germany is slowing down with infla­tion-fighting high interest rates, and the move to the European Community is encountering resistance. Asian markets remain buoyant, but Japan is facing in­ternal problems with a probable decline in aluminum consumption in 1992. Overall, a two percent growth in de­mand in 1992 seems likely; slightly bet­ter than double that is expected for 1993. Still, world inventories will be growing in both years.

With regard to the London Metals Exchange inventory (the industry's true working inventory), the current amount of 1.3 million tonnes is about one month's primary aluminum consumption, and it could quickly be diminished if fabrica­tors perceived an imminent upturn in demand.

Aside from economic factors, the in­dustry faces the challenge of aligning environmental performance with soci­ety's rising expectations and standards. One issue, for example, is the public's concern about global warming, which involves the primary aluminum indus­try on two counts-the emission of car­bon dioxide and polyfluorinated car­bons. The implications of both are being studied by the Aluminum Association, but a general tax on CO2 emissions, currently under discussion, could have a serious impact (perhaps $100 per tonne) on aluminum production costs.

Waste minimization and the handling of hazardous waste remain important considerations at many levels of the aluminum industry'S operations, both from the perspective of social responsi­bility and the need for cost reduction. Further, although the industry is fre­quently criticized by some environmen­tal groups over bauxite mining, the In­ternational Primary Aluminum Institute has prepared a survey on the environ­mental performance of these operations. The industry is committed to high environmental standards in these areas.

As for the high energy content of aluminum's primary production proc­ess, there seems to be no alternative; but it is also one of the many factors that makes recycling so attractive.

Importantly, members of the industry know that aluminum's light weight and recyclability make it an indispensable material. However, this is a message that the field must constantly broadcast. It is necessary to establish and commu­nicate the life-cycle facts about alumi­num versus competitive materials and make all levels of government, the pub­lic, and environmental groups aware of aluminum's recycling advantages. For the aluminum industry and recycling, the price of success is persistent pro­motion-particularly promotion of the real and solid advantages that alumi­num has to offer.

David Morton is the chair and chief executive officer of Alcan Aluminium Limited in Montreal, Canada.

a a JOM. November 1992