Aluminum Prices Elevated By Growing EV Use

As more governments introduce combustion engine bans and consumers embrace cleaner transport options, global EV adoption is accelerating rapidly. This seismic shift sends ripple effects throughout industrial supply chains, including in the aluminium industry.

This in-depth analysis explains why EV adoption has pushed aluminium prices to over a decade high and suggests the outlook for coming years.

EVs Driving Increased Aluminum Usage

EVs require 20-30% more aluminium than conventional internal combustion engine vehicles. Aluminum’s lightweight yet rigid properties make it the material of choice for vehicle components needing strength and efficiency.

On average, an EV contains 200-250 pounds of aluminium compared to around 150 pounds for gas-powered equivalents.

The global EV fleet has grown almost ten times over the last five years alone, yet it still only represents 5-7% of total vehicle production.

As adoption accelerates further to projected targets of 30-40% of new car sales by 2030, billions more pounds of aluminium per year will be needed just to keep pace.

Some analysts estimate overall automotive aluminium demand growth of over 40% this decade.

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Aluminum Uses for Electric Vehicles

Within EVs, core aluminium applications include:

• Body Panels - Entire car shells are moving towards all-aluminium construction for light-weighting.
• Drive Train & Suspension - Motor housings, steering knuckles, and suspension arms utilize aluminium for strength.
• Battery Housing & Thermal Management - Heat sinks and structural battery enclosures also increase aluminium needs.
• Wheels - Lightweight forged and cast aluminium wheel production volumes soar with EV popularity.

Each EV requires an average of 70-100 kg more aluminium than its gas-powered counterpart. As global automakers dramatically scale up EV lineups, aluminium consumption stays under long-term upward pressure.

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Supply Chain Issues Deepening Price Pressures

While EV adoption is boosting aluminium consumption substantially, constrained production capacities have made it difficult for suppliers to keep up with surging demand.

Several factors along the aluminium supply chain have exacerbated price pressures in recent years:

Export Restrictions: Countries like China, Russia, and India have periodically instituted tariffs or export quotas on unprocessed bauxite and aluminium to prioritize domestic processors. This tightens international supply availability.

Energy Costs/Curtailments: Energy represents 30-40% of aluminium production costs. Last winter, recent EU energy spikes and curbs in China disrupted smelting activities for months, lowering output.

Mine Development Timelines: It can take 5-10+ years to advance a new bauxite deposit from exploration to full production. Limited mining project pipelines point to flat growth in aluminium-grade ores.

Permitting Hurdles: Environmental assessment requirements and local opposition can delay crucial mine/smelter expansions by several years in many jurisdictions.

Infrastructure Bottlenecks: Insufficient midstream processing, warehousing, and port and transport facilities constrain suppliers’ abilities to scale up even when new capacity rapidly comes online.

Underinvestment Cycles: Previous periods of low aluminium prices led to cutbacks that leave little excess capacity available today when large deficits materialize. New projects face higher costs.

These impediments along the supply chain development process point to aluminium availability constraints persisting over the medium term despite low historical inventory levels. Limited supply growth buffers leave bullish fundamentals intact.

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Projected Demand Growth Through 2030 & Beyond

Most aluminium forecast models see vehicle demand as the primary growth driver. The International Aluminum Institute estimates overall automotive use alone could expand to over 20 million metric tons by 2030 – a 35% rise this decade.

Meanwhile, the Energy Transition Council predicts annual EV sales will reach over 150 million vehicles within the next ten years.

Meeting this demand will push global aluminium consumption from the current 70 MMt to a potential 95-105 MMt range by the end of the 2020s.

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China’s Leadership Role Magnifies Metal Needs

No country has a greater influence on global aluminium markets than China. As the world’s top producer and consumer of aluminium, China accounts for over 55% of global aluminium production annually.

This centralized production position allows China to significantly impact supply and pricing trends through policy changes or production disruptions within its domestic industry.

On the demand side, China is also the leading global EV market. In 2022 alone, Chinese EV sales exceeded 3 million units, representing over 40% of worldwide EV uptake.

China’s national zero-emissions vehicle policies and massive investment in EV infrastructure and battery production have catalyzed much stronger EV penetration rates than other major auto markets.

With EV adoption rates estimated to continue climbing 15-25% annually in China through 2030, aluminium demand linked to Chinese automotive production will balloon enormously.

Adding in other growth segments like green building materials and power infrastructure, also driven by carbon reduction goals, Chinese aluminium consumption looks set for sustained gains correlating directly to government pollution targets.

Any supply disturbances within China’s domestic aluminium industry tend to markedly move global pricing due to these volumes. For example, aluminium costs sharply rose worldwide when Chinese smelters reduced output amid energy curtailments in late 2021.

As Chinese policymakers prioritize EVs and strategic battery materials, dependency on stable Chinese output will intensify.

Considering that over half of all aluminium traded originates from Chinese smelters, market observers pay close attention to future production quotas or export restrictions from top producers Shenzhen or Shandong, which can instantly reshape supply/demand balances.

Geopolitical tensions likewise ratchet up concerns around potential supply chain disruptions.

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Bottomline

The rapid growth of electric vehicle adoption is fueling a massive surge in aluminium demand, as EVs require significantly more aluminium for their lightweight construction and battery components.

However, aluminium supply is constrained by various factors along the supply chain, including export restrictions, energy costs, permitting hurdles, infrastructure bottlenecks, and underinvestment cycles.

These constraints lead to elevated aluminium prices, likely to persist over the medium term.

The outlook for aluminium demand remains bullish, with projections suggesting a potential increase of up to 35% in global aluminium consumption by 2030, driven primarily by the automotive sector’s transition to electric vehicles.

The upcoming bullish momentum in aluminium prices presents a lucrative opportunity for traders who monitor its fluctuations closely. Stay tuned to the news regarding this commodity and continuously improve your trading skills.

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