The Analytical Group of AzVision.az

Metal Hunger | Long Read

// The challenge for the ‘new industry’ might become a chance for some countries

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he world today is facing many devastating challenges in numerous areas. Food, energy, and non-ferrous metals are the top three. The situation with food supplies has already brought the world to the brink of starvation (Read the previous long read by AzVision). The problems non-ferrous metals can cause may not seem too severe at first. However, the matter at hand is quiet serious and has grounds to raise concern.

We have been observing a leap in the role non-ferrous metals have been playing in the world economy recently. Therefore, the steady price surges will have a serious impact both on the economic situation as a whole, and the inflation level. We are not just talking about price hikes for telephones, laptops, and electric cars we use without a second thought. The ‘stakes’ are much higher.

Alarming Numbers

Experts at World Bank believe that there are currently three main components of global inflation: energy, food, and metals. They forecast that by the end of the year, energy prices will jump by over 50%, food by 23%, and metals by 16%. Consequently, the economic shock of 2022 might even be more severe than the 1970 stagflation. Among these three sectors, energy and food crises have been talked about quite extensively, whereas metals somewhat overlooked.

The World Bank expects metal prices to rise by 16% this year

An assessment by the International Monetary Fund prognosticates the demand for 4 major non-ferrous metals (aluminum, copper, nickel, and zinc) to grow six-fold and their market to reach 13 trillion US dollars within the following decade due to transition to a ‘zero-carbon’ economy.

Metallurgist and non-ferrous metal specialist Orkhan Mammadov said in his interview to AzVision’s Videocast project that the prices of some non-ferrous metals in the world have grown by 50 percent, others by 100, in the last three years. This is a rather dramatic increase, considering that a ton of certain metals sells for 80-100 thousand dollars.

High prices aside, the market is already facing a shortage. Consequently, certain countries might stop exporting altogether, while price hikes accelerate.

Modern technologies are increasing the demand for non-ferrous metals significantly

What complicates the issue is the globally growing military tension. If the weapons in the past were mainly made of steel (war has always meant ‘steel and blood’ ), producing modern precision weapons, such as missiles and drones, requires large amounts of non-ferrous metals. All deals seem inappropriate when security is at stake.

Head of Russia’s Positive Consulting business plan development center, Irek Galiamov, said in his interview to AzVision, that pivots in logistics chains and the market on a global scale will lead to 50-70 percent price hikes for non-ferrous metals. The metals in question are aluminum, copper, nickel, silicon, and cobalt, which are currently in great demand for the global industry. Experts expect a 38 percent price increase for aluminum and 52 for nickel by the end of the year.

Aluminum

In its heyday, aluminum was more expensive than gold. We all remember how the famous chemist Dimitri Mendeleev was given an aluminum ingot as an expensive gift. Currently, everything is pointing towards aluminum prices returning to what they once were.

Aluminum prices rose sharply for the first time towards the late 2010s, selling for almost 3,000 USD a ton. It quickly dropped back to 1,500 USD and the following decade became a term of cheap aluminum. It was precisely the time when the ‘new industry’ began to gain momentum.

Dynamics in aluminum prices over the past 3 years and the forecast by 3 different institutions

Towards the end of the second decade, aluminum became one of the items the US and China fought over in their ‘trade war’. Donald Trump imposed an additional 25 and 10 percent tariff on steel and aluminum imports into the country in 2018. It was all for the sake of ‘protecting American industry’. European countries returned the change with the same money. This altered the environment in the non-ferrous metal market drastically and prices began to rise.

The US and the EU then ‘made peace’ and started a ‘front’ against China, which is now unequivocally the largest player in the global aluminum market. As Biden spoke at the G20 summit last year and said that ‘the US and Europe should restrict access to our markets for dirty steel’, he was referring to China. The case is that the industry still uses electrolysis to obtain aluminum. This, in turn, requires large quantities of electricity, which is extremely expensive in Europe and becoming even more so. Power plants in Chine continue to burn coal, whereas it is impossible to imagine how Europe can make their aluminum prices competitive in the market when they will use electricity powered by gas at head-spinning prices to produce it. Therefore, the prices for aluminum in the global market were correlated with the prices for coal in China towards the late second decade.

Aluminum prices is directly correlated to electricity costs, due to the high energy consumption in aluminum production

The third decade introduced new factors. The coup d’etat in Guinea in September 2021 gave a drastic impetus to prices ( the country accounts for 20% of aluminum bauxite produced worldwide ). As the war started in Ukraine in February 2022, prices broke previous records.

Presently, there are several factors affecting growth: investments in the field are scarce, demand exceeds supply and geopolitical risks have increased.

Copper

Copper entered into a rising trend in 2019 and broke a decade-long record of selling for more than 10,000 USD per ton in May 2021. Both copper production and consumption are growing yearly because the ‘green industry’ requires so. For example, if producing a traditional car requires 23 kg of copper, hybrid cars need 40, and electric cars – whopping 60.

The growth dynamics in copper consumption over the last 120 years

The International Copper Study Group reports that the world is facing an obvious shortage in copper. The prices are projected to reach 12,500 USD by 2025. The copper industry is also experiencing a lack of investments.

Nickel

Nickel is also among the metals going up in price due to the growing demand for stainless steel, electric cars, and ‘green energy’. It is one of the main elements used in batteries. Global demand for nickel will jump by 16 percent this year alone.

5-year dynamics in nickel prices

Fitch Ratings calculate that the demand will increase fivefold by 2050. Nickel prices have been on a steady rise for the past five years, but the growth tempo speeded up even more in 2022. By the end of the year, the metal is expected to sell for over 24 thousand USD per ton.

Vicious Circle

Yes, the process of price hikes for non-ferrous metals did begin in 2019 and the pandemic intensified it some more. However, the sanctions imposed against Russia are currently playing the main part. It is not a matter of direct impact: Russia does not play that great of a role in the metal market. For example, it only has a 6 percent-share in the aluminum market. However, the indirect impact is too drastic.

Producing non-ferrous metals, especially aluminum and copper, requires vast volumes of electricity. As prices for energy products go up, so does the cost of electricity and therefore the production of non-ferrous metals. Alternative energy could potentially act as a way out, but when non-ferrous metals are this expensive, the transition to alternative energy becomes pricier and more difficult. The loop thus closes.

Equipment that produces solar energy, such as solar panels and windmills, requires copious amounts of non-ferrous metals. The metals in question are primarily elements such as aluminum, copper, silicon, and lithium. Alexei Kalachev, the analyst for Finam, said in his interview to AzVision.az that the foundation for the ‘new industrial revolution’ is non-ferrous metals. The amount of copper, nickel, aluminum, and other non-ferrous metals required for a ‘green economy’ is massively bigger than that, needed for transportation means that run on internal combustion engines and for conventional energy. The supply at present is lagging behind the growth in demand. The situation might continue so well into 2030. Therefore, the transition to a ‘green economy’ or ‘zero carbon emissions’ remain iffy until then. So, what can we do?


Non-ferrous metals must be available to transition to ‘green energy’

The logic is rather simple: The reason behind price hikes for non-ferrous metals is the growing cost of electricity, required to produce them. Electricity fares are on the rise because gas and oil are pricey. This means producing non-ferrous metals will cost less in countries with cheaper gas and oilThey can take this opportunity to both make a good profit and save the global industry from stumbling. So, what we need to do now is pin countries rich in both oil and gas and non-ferrous metals on the map.

Kazakhstan

The country used to be famous as the ‘pearl of non-ferrous metallurgy’ in the Soviet Union. It particularly has great opportunities and potential to produce copper and zinc. Interestingly, the province ‘ Jezkazgan’, where the copper production hub is, literally means ‘copper mine’. The production is cheaper due to its closer location to the surface. The country boasts some 63 copper deposits. The production of non-ferrous metals rose by 6.1 percent in the first semester of 2002. In addition, the country also produces zinc and gold.

Jezkazgan literally means ‘copper mine’

Uzbekistan

Non-ferrous metallurgy is one of the backbones of the Uzbek economy. Similar to neighboring Kazakhstan, the country mainly produces copper, zinc, and gold. They also have tungsten and molybdenum ores. There are several large metal processing enterprises. The country has built the full production cycle – starting from ore extraction to finished product. They have more than 15 copper deposits alone. The Almalyk mining area is especially famous for copper-molybdenum production. There is a refinery for refractory metals in the Chirchik Valley.

Azerbaijan

Aside from the famous Dashkesen, Azerbaijan also has ore deposits in Ordubad, Karabakh, and Balakan-Zagatala. These are mainly copper, cobalt, and lead deposits. Azerbaijan is sustainably expanding aluminum production and exports. Last year, Azerbaijan exported 67.355 tons of aluminum and aluminum products worth $188,529,240. This makes an increase of 66.2% in revenue and 12.6% in volume compared to 2020.

We must initiate new geological explorations in the liberated lands to assess the mineral resources in Azerbaijan

Lucrative Prospects

Developing new non-ferrous metal deposits requires a vast amount of time and investment. Regional cooperation can enhance the process. Turkey boasts a well-developed metallurgy sector. Last year only, the country exported ferrous and non-ferrous metals worth 12 billion USD. That being said, it mainly specializes in heavy metallurgy (iron and steel).

If the abundant non-ferrous metal resources of the Turkic republics in Central Asia meet investment and advanced technologies, they might have a chance to boost production significantly. Building a legal framework for joint activities within the Organization of Turkic States will facilitate the process considerably. Azerbaijan’s transport capacities open new paths for exporting Central Asian metals to the global market.

Economist Elman Sadigov believes that selling the extracted non-ferrous metals as a raw product is not, in fact, worthwhile. Those metals must be processed at refineries yet to be built. This is the first stage, which is an absolute must. The second may include incorporating them into our domestic industry, creating a value chain. This scenario will allow us to gain more.

Elman Sadigov: ‘There is no modern life without non-ferrous metals’

The current situation in the market opens new interesting opportunities for all countries, that produce non-ferrous metals. We tried our best to contact local authorities for more information about the metallurgy prospects in Azerbaijan. Our attempts, unfortunately, have been in vain. The Ministry of Economy did not address any of our inquiries, nor could it direct us to a source that would. There was no one, who could quench our questions at AzerAluminium as well.

Last year’s forecast by the International Monetary Fund reads that non-ferrous metal exports will benefit significantly from the expected price hikes over the next 15 to 20 years. Consequently, the economic development tempo in non-ferrous exporting countries will be much higher than the importers. This is a chance, which must be taken.

  08 August 2022    Read: 1313    Can be read: 19 min.

19 min.