China — and, indeed, Asia as a whole — has a serious issue evolving that few would have seen coming five years ago.
Back then, the carbon content of aluminium was a well-known fact. However, its light weight and high recyclability seemed to outweigh the CO2 emissions inherent in its production.
Not so now.
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China aluminum sector and emissions
Government’s ambitions to reduce atmospheric pollution and consumers’ increasing desire for low or net-zero emission products is driving a rapid transformation in issues around aluminum smelter power supply.
Nowhere is this likely manifesting itself as dramatically as in China. Environmental pollution is one of few issues Beijing actually feels vulnerable about as a source of public unrest. The government’s latest five-year plan calls for dramatic reductions in emissions. The news has already hastened a move to hydro-rich Yunnan province, Reuters reported. The government effort against pollution could herald the closure of capacity elsewhere.
The challenge for China is that so much of its aluminum smelting uses coal-fired power production.
The China aluminum sector produced 36 million tonnes of primary aluminium in 2019. In addition, it used 484,342 gigawatt hours of energy to do so, 88% of which came from coal, according to the International Aluminum Institute (IAI).
The carbon footprint of primary aluminium can span a wide range from less than 5 tons of carbon equivalent for renewable energy such as hydro — think Rusal, Norsk Hydro, etc. — to more than 25 tons for coal (think much of China).
Over time, the problem is getting worse.
Environmental pollution in China is demanding drastic steps. It would be tough enough if the industry were standing still, but demand is still growing fast. Beijing has imposed a 45-million-ton cap, already some 58% of global output. Per the Reuters report, the IAI predicted demand will grow globally by a further 25 million tons. A significant proportion of that demand will be in China.
How quickly China can build renewable generating capacity while still making meaningful reductions in coal-fired power production will be a balancing act.
Judging by the SHFE price, it’s one investors think the industry is already losing.
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