This is Aluminum marketing research and can include information on the background, market structure, definitions, competitors, trends and developments of aluminum and is related to other topics such as minerals, metals and bauxite.

Table of Contents

[edit] Background

Aluminum is a very abundant metal. It also highly sought after due to its properties of being lightweight and its resistance to corrosion. It is heavily used in the automotive, aerospace and construction industries and demand for the metal has soared in the past 50 years. Unfortunately, it occurs very infrequently in a free state and is instead usually found combined with other minerals such as bauxite and therefore needs to extracted and smelted. This extraction from mineral ores is a difficult and expensive process.

One of aluminum’s core requirements is access to large amounts of power in order to drive smelting operations. A very high temperature is necessary to melt aluminum. The heat is derived from gas, geothermal, hydro or other power sources to generate electricity or heat. Electric power used in aluminum smelting can can represent up to 40% of the cost of production of aluminum. This has prompted most major producers to continually look to set up production operations increasingly closer to sources of energy. These may be hydro power in some cases or simply closer to large sources of natural gas, such as exist in the Middle East. For example, Alcoa is investing in hydroelectric projects in Brazil in order to be close to the actual power source.

[edit] Market Structure

Aluminum production is expensive and requires heavy capital investment. Most of the key producers are major corporations and the business is concentrated, not fragmented. As indicated above, a recent trend is for major firms to invest in smelting operations which are closer to power sources. As a direct results, older aluminum operational facilities are closing down as the older sites are no longer cost effective. Norsk Hydro, for example has terminated approximately a quarter million tons of capacity in Northern Europe in favor of cheaper Middle East based operations. Alcoa has made similar moves. Industry experts estimate that up to 4 million tons of annual aluminum capacity from older facilities could be shut down in the next 3 to 4 years. How aluminum is used:

[edit] Industry Definitions

• Alloy - homogeneous mixture of two or more elements, at least one of which is a metal, and where the resulting material has metallic properties.

• Corrosion - deterioration of essential properties in a material due to reactions with its surroundings.

• Ductility - the mechanical property of being capable of sustaining large plastic deformations due to tensile stress without fracture (in metals, such as being drawn into a wire).

• Non-magnetic – not attracted to magnetic fields.

[edit] Market Metrics

The growth in aluminum production has been especially high in the past 10 years. It is estimated that production of aluminum exceeded 32 million tons in 2006.

World production has grown enormously since World War II


     Year			Estimated Aluminum production 
			         (In million tons annually)

     1950				    1.5
     1960				    4.9
     1970				   10.1
     1980				   15.0
     1990				   19.5
     2000				   25.0
     2007				   32.0

Aluminum demand is expected to rise approximately 3 to 4% annually. The core growth in production is expected to be in countries with less expensive access to power. Despite the enormous growth in Chinese demand for aluminum, it is not expected that the country will increase production radically as the cost of energy within their country is seen as too high. China, however, was the largest producer of aluminum in 2005, with an almost 20% market share.

Recent production estimates for key geographies


Geography				Production (12 month moving average)
					     (In thousand metric tons)

			1996		2000		2004		2007   

North America	         460		 510		 465		 450
Europe		         490		 610		 685		 700
All other regions	 520		 605		 755		 850

Twenty years ago, American, Canadian and European firms dominated most of the aluminum market. In fact, they likely accounted for more than 50% of production at the time. Currently, these producers account for less than 25% of the total as production has shifted more towards emerging markets countries with access to cheaper power sources. Some major firms expect the demand for aluminum to remain high and are planning major expansion. Rusal for example, continues to buy up local power companies and plans to increase capacity by 60% in the next 5 to 8 years.

[edit] Industry Players

• Rusal

Headquartered in Russia

Merger of Sual Group, OAO Rusal and assets of Glencore AG

Revenues of US $8.6 billion in 2006

• Alcoa

Headquartered in Pittsburgh, Pennsylvania

Revenues of $31.5 billion in 2006

Net Income of $2.2 billion in 2006

• Norsk Hydro

4th largest aluminum producer worldwide

Major producer of oil and gas in Norway

43% owned by the Norwegian government

Produces over 1.6 million tons of aluminum annually

• Rio Tinto

Headquartered in the UK

Revenues of US $22 billion in 2006

Market capitalization of US $97 billion

33% profit margin

Currently bidding US $38 billion to buy out Alcan

• Alcan

Headquartered in Montreal, Canada

Revenues of US $25 billion in 2006

May be purchased by Rio Tinto

[edit] Trends and Recent Developments

With the price of aluminum remaining high, companies are investing heavily to find dedicated power sources to be able to produce aluminum. They are looking even further afield, often in very remote locations to set up aluminum producing operations. Some of these firms, including Rusal and Norsk Hydro are looking to remote spots in Siberia or other locations for new production sites. The new rule seems to be to get closer to the production source as opposed to closer to the customer. The geographic center of gravity continues to shift. The Middle East, as a consequence of its major oil and gas reserves, is expected to significantly grow its aluminum production. With the same objective in mind, Norsk Hydro has teamed up with Qatar Petroleum to expand capacity in Qatar. Alcoa has set up production operations in Iceland where it has better access to hydropower. For the most part, aluminum operations in the Pacific Northwest of North America have been almost shut down due to the high cost of fuel.

Many firms are also focused more on the core production functions and are spinning off ancillary operations such as aluminum packaging or aluminum can production (Rusal). Alcoa has also recently been interested in selling some of its consumer-oriented operations including ones in the automotive sector.

[edit] Sources

Norsk Hydro

Yahoo Finance

Wikipedia

Market Watch

Wall Street Journal

International Aluminum Institute

United States Census Bureau

[edit] Related ResearchWikis

Lead Mining Marketing Research

Minerals Marketing Research

Mining and Mining Equipment Marketing Research

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• European Aluminum Market Analysis