A timely post by the Financial Times covers the menace to the global auto industry because of the power crisis in China restricting supplies of critical components applied across a range of industries. But particular to the post is the making of aluminum alloys. Nearly 90% of the world’s magnesium production originates from China, the Financial Times reports.
Because of power shortages, the Chinese government placed approximately 35 of its 50 magnesium smelters to close until the end of the year.
The report cites Barclays analyst Amos Fletcher, who stated that thirty-five percent of downstream demand for magnesium is auto sheet. So if the magnesium supply ends, the entire auto industry will probably be required to stop.
Increasing Aluminum Alloy Costs
The peril is real enough. Regrettably, flagging up the danger to supply contracts and the potential for cost pass-throughs by aluminum mills, it is not limited to magnesium.
MetalMiner has witnessed first-hand examples of mills attempting to renegotiate extrusion contracts because of rapidly escalating raw material costs – mainly silicon, manganese, and magnesium. All of those rely on high power consumption smelting or refining processes. Moreover, the world has become seriously reliant on China for these materials.
Power prices have always been a driver of aluminum prices. Nevertheless, suppose one metric ton of aluminum regards 16-megawatt hours (MWh) of power, then, by comparison. In that instance, one ton of magnesium needs 35-40 MWh. This makes power costs an even more critical price driver for the metal.
Chinese Export Prices Increase, Inventory Delays Elsewhere
Price increases are due to a speedy escalation in Chinese export prices and the absence of backup inventory in Europe and elsewhere.
The U.S. has one significant domestic producer. Nevertheless, it relies in part on imports. While aluminum mills are unlikely to go low in the U.S., prices could undoubtedly increase.
Europe Is Not so Lucky
The Financial Times reported that European Aluminium had urged the EU and national governments to work instantly towards direct actions with their Chinese counterparties. It worries Beijing will now lead the remaining production to its vast domestic aluminum industry. Reserves in Europe should run out by the end of November (if not before).
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