The future of aluminium in Europe: challenges and opportunities

The report presented by Mario Draghi to the European Commission on the future of aluminium in Europe touches on numerous critical issues of the European aluminium system that have long penalised the sector both at continental and Italian level.

Aluminium is an undisputed protagonist of the global manufacturing industry, with a complex of activities that range from the production and transformation of the metal into semi-finished products, to the manufacturing of components for finished products. Despite being a relatively young material in the metallurgical panorama, it has undergone an extraordinary evolution, positioning itself as the second most used metal after steel already at the beginning of the 2000s.

The evolution of aluminium production at a global level

In 1920, world production of primary aluminium was less than 200,000 tonnes, but in the immediate post-war period it reached 2 million tonnes and then almost reached the threshold of 25 million tonnes at the beginning of the new millennium. The light metal has thus established itself as a leading material in key sectors such as mechanical engineering, packaging, construction, automotive and consumer products. During this period we have witnessed the rapid growth of aluminium in geographical areas such as China, the Gulf and the Middle East, but also the beginning of the decline of primary aluminium production in the EU, a phase that continues without interruption.

Two divergent trends emerge: globally, primary aluminium production continues to increase, reaching 70 million tonnes last year, with China consolidating its leadership with 40 million tonnes. On the contrary, the EU is positioned at the bottom of the world with a primary aluminium production of less than 1 million tonnes per year, representing less than 15% of the annual European requirement of primary metal. A surprising scenario considering that, until a few years ago, the European aluminium industry occupied a position at the forefront of the world, achieved in just over 140 years thanks to excellent know-how, technologies and skills.

Globally, estimates by the International Aluminium Institute of London predict a total world production of raw aluminium of 150 million tonnes in 2050 (45% primary and 55% secondary), compared to the current 70/30 ratio between primary and secondary. This highlights the high expectations for the role of recovery and recycling in the future of aluminium in Europe and globally.

The critical issues of the European aluminum system

With regard to the European Union, the downstream sector has long been providing clear signals about basic needs, providing national and European policy makers with a wealth of information to define effective industrial strategies and policies. The European Federation of Aluminum Users (FACE) has continuously raised the issue with the European Commission and individual governments about possible improvements to safeguard the heart of this industry: small and medium-sized companies involved in the transformation, processing, finishing and final uses of aluminum.

However, there has been a lack of courageous and far-sighted choices on crucial issues such as:

• Energy;
• Fair access to raw materials;
• Balances between industrial competition and eco-sustainability.

The critical issues of the European aluminum system have probably been accentuated by the opposition within the supply chain between raw material producers and the still little-heard voice of downstream processors and consumers. These small and medium-sized companies, which represent the real strength of the aluminium supply chain in the EU, must make their positions heard and suggest strategies to fuel the development of the entire sector, without limiting themselves to responding to pressure from large companies upstream in the chain.

FACE has joined forces with other important associations such as Amafond, Assofermet, Assofond and BWA, managing to be considered a direct interlocutor of important decision-makers in Brussels, obtaining a hearing and recognition useful for the sector.

In this perspective, the report on EU competitiveness presented by Mario Draghi in September 2024 represents an important turning point because it summarizes what FACE has been supporting for years on fundamental issues for the future of aluminum in Europe (fair access to raw materials, decarbonization, energy costs, eco-sustainability, fight against unfair commercial competitiveness).

The leitmotif of Draghi's suggestions is the absolute need for a real industrial policy to avoid the agony of an otherwise inevitable decline for the sector.

Import duties: a critical issue for the European aluminum system

Particularly relevant are the observations relating to a topic raised and supported by FACE with continuity for over twenty years: the need for coordination between industrial policy choices, global competitive contexts and trade policies. This aspect is essential in the case of the raw material aluminum, too often dominated by inertia or lack of attention that has translated into incomprehensible favoritism.

The main reference is to the EU duty on the import of raw aluminum, a tariff whose total elimination FACE has insisted on since 2007, after the intervention of EU Commissioner Lord Mandelsson. The latter expressed himself forcefully regarding the inconsistency of this measure that benefits those who produce raw material and diminishes the competitive strength of the entire European downstream, made up of tens of thousands of small and medium-sized companies that constitute approximately 75% of the turnover and 90% of the workforce of the European aluminum supply chain.

The studies commissioned by FACE to the LUISS University of Rome since 2015, and subsequently in Germany to Faireconomics, have highlighted the negative consequences of the duty on raw metal for the competitiveness of the European downstream. This duty represents:

• A serious loss of competitiveness for aluminum transformers and users;
• A heavy burden estimated at almost 20 billion euros in less than 20 years;
• A brake on the growth and development of the sector;
• An absorption of costs and energy that could be invested in research and development.

The fact that the EU is in deficit for more than 85% of the primary metal needs, which must be imported to keep the light metal manufacturing industries operational, makes the maintenance of this duty structurally incomprehensible. As indicated in the Draghi report, it is necessary to give strength to small and medium-sized manufacturing companies in the EU, eliminating unjustified favoritism in the face of the growing shortage of raw material.

Secondary aluminium: a key resource for the future in Europe

The Draghi report also calls for vigorous action both on eco-sustainable manufacturing and on the drive to the best possible decarbonisation of the aluminium industry, characterised by high energy demands. These ambitious choices must combine the objective of maintaining technological leadership with that of achieving decarbonisation.

In this context, the issue of recovery and recycling takes on fundamental importance for the future of aluminium in Europe. Scrap aluminium and its alloys can be continuously reused with very low losses and without metallurgical and technological degradation. From an energy point of view, 1 kg of recycled aluminium requires just 5% of the energy needed to produce 1 kg of primary metal. Today, around 75% of all primary aluminium produced in around 150 years of industrial use is still in circulation, with scrap collection rates reaching up to 90% depending on the regions and products.

This characteristic represents a major opportunity to build an environmentally sustainable industry, attentive to social values ​​and perfectly aligned with the demand for a circular economy. It would be a serious mistake to reduce the commitment to green policies, while it is vital for the EU to follow this path to strengthen competitiveness, aiming for a real transition to a sustainable and low-carbon economy, which is essential to modernize the European economy.

CBAM and Inflation Reduction Act: impacts on the European aluminium system

The debate on the Carbon Border Adjustment Mechanism (CBAM) is another crucial element for the future of aluminium in Europe. The European Commission has developed this new carbon border tax measure within the 'FIT FOR 55' package, with the aim of reducing emissions by 55% by 2030 and putting the energy transition into practice. The measure will come into full force in 2026, but is already active as a reporting system for emissions embedded in exports to the European market, concerning sectors considered at risk of carbon leakage, including aluminium.

According to FACE, the CBAM in its current formulation represents a choice that damages companies that use aluminium as a raw material, increasing costs, decreasing the competitiveness of EU manufacturing and leading to an increase in prices for end consumers. Furthermore, it puts at risk the supply of a material essential to the European industrial system.

In contrast to the CBAM approach, the Biden administration’s Inflation Reduction Act (IRA), a $400 billion package of tax breaks and investments to decarbonize the U.S. economy, demonstrates a more effective approach to promoting environmental safety. The IRA includes measures that promote the reduction of greenhouse gas emissions and support for renewable energy, without creating distortions in the market. It also focuses on reducing inflation, benefiting both consumers and companies, and promotes innovation and technological development.

The CBAM, as it is currently conceived, is presented as an additional environmental duty on aluminum that will inevitably lead to a loss of competitiveness for aluminum and its alloy processing and manufacturing companies, and to a certain increase in the costs of finished products. According to estimates, the CBAM will not contribute to the competitiveness and decarbonisation of the primary aluminium subsector, but will further damage the downstream subsector with extra costs estimated at more than €5 billion per year, up to €7 billion adding the extra cost generated by import duties on raw aluminium.

Research and development: a pillar for the future of aluminum in Europe

Finally, Draghi's report draws attention to the need for a solid implementation of research and development efforts in the EU. Europe must absolutely commit to bridging the deep innovation gap compared to the United States and China, as it currently has a static industrial structure with few new companies that are born on truly original criteria compared to the existing ones.

Too little is invested in research and innovation in Europe: 270 billion euros less than in the USA (2021 data). The problem is not the lack of new ideas or researchers, but rather the inability to translate innovation into concrete achievements for the market, often due to regulatory measures that are inapplicable, restrictive and incompatible with market needs. Europe excels in mature technologies, but this is no longer enough: the new struggles to grow and the industry gradually risks disappearing.

Conclusions: a possible future for aluminium in Europe

The strong message for Europe is to commit to concrete actions on eco-sustainable manufacturing, decarbonisation, technological development and great attention to sustainable energy. This approach must be based on a network of small and medium-sized companies distributed throughout the territory that ensure the conservation and growth of technological assets and industrial knowledge.

For the future of aluminium in Europe, many opportunities are opened by new paths towards the eco-sustainable transition. Europe and Italy boast a great tradition of over a century in the development of the aluminium supply chain: it would be a serious mistake not to adequately support the small and medium-sized companies in the EU that have made this industrial segment great in the world, addressing and overcoming the current critical issues of the European aluminium system and relaunching the production of primary aluminium in the EU in a sustainable way.

Source: M. Conserva for A&L Aluminium Alloys Pressure Diecasting Foundry Techniques