Aluminium Federation of Southern Africa (Afsa) executive director Mark Krieg says the aluminium foundry sector has declined by 40% over the last five years, while the wrought aluminium sector is growing steadily by about 7% a year.
He partially attributes the decline in the foundry industry to government’s support of the export of scrap under the open trade philosophy. Krieg says other countries have been paying an opportunistic price for scrap from South Africa to facilitate value addition under a different economic model. Local foundries find that meeting the opportunistic cost makes it unviable to continue casting. This has placed the industry under extreme pressure.
He comments, however, that the situation is on its way towards resolution. After about eight years of discussions, government is working towards a new model for the export of scrap. The local effect should be a reduction of secondary metal prices, which will assist the foundry sector.
He explains that scrap is important to the industry. Aluminium is difficult to extract from its natural oxide, given that aluminium binds tightly with oxygen, and a large quantity of energy and effort is required to separate the two elements. However, once the metal has been separated from its oxide, remelting only takes 5% of the power required to extract the aluminium.
Once it is extracted it can be reclaimed quite easily. It acts as an energy bank, making aluminium scrap a valued commodity.
“Scrap is an extremely valuable resource, as aluminium can be recycled and reused repeatedly. Seventy-six per cent of all the aluminium smelted over the last 120 years is still in use and can be traced,” says Krieg.
Krieg comments that a proposed response to the energy crisis was to shut down primary aluminium smelters.
Eskom is considering restrictions on industry, allowing them to buy 90% of the average energy used in the previous financial year, which ended in September last year. The utility also plans to limit growth in electrical supply by 4%, to service a 6% growth in demand.
Krieg says these restrictions will result in an entirely different cash flow analysis. While the aluminium industry is generally on the increase, the challenge of the energy limitations, coupled with the envisaged limit of the growth of electrical supply to 4% a year, implies a move away from primary beneficiation in the aluminium industry towards less energy intensive downstream value addition,” says Krieg.
He comments that the perception exists that the smelters are buying subsidised energy, but explains that this was only marginally true before 1986, when smelters were given a preferential rate for energy as they used large amounts of energy continuously with no increases in use, which was convenient for power suppliers.
Matters changed in 1986 in the US when a high demand for energy resulted in an electrical supply cost contract tied to a percentage of London Metal Exchange, in 1986. In essence, this implied a high price similar to and better than most industries when the commodity prices were high in times of high demand, and depressed prices when demand was low. A similar model is followed in the local primary smelter supply.
Quite apart from a world-based power cost, aluminium smelters require energy security, as the smelting process is a continuous, balanced operation necessitating the continuous operation of smelters. The local smelters are among the most modern in the world.
Energy saving can only be achieved through pot closure.
However, the secondary sector is different. He says that a proposed project to be undertaken by the National Foundry Technology Network, supported by Afsa, will see the benchmarking of the energy use by foundries with the aim of devising ways to reduce energy use.
Krieg says that another issue in the aluminium industry is that imports from developing countries appear to have significant outside support. Krieg explains that other countries can sell aluminium to South Africa at a lower price than it costs local producers to extract the metal. This means that other aluminium producing countries are making a profit, while South Africa’s aluminium industry becomes poorer.
The new Automotive Production and Development Programe (APDP) is another source of concern to Afsa, as it did not initially appear to be attractive to the automotive industry. However, the final published version appears to have overcome many of the concerns. Krieg says this may affect automotive aluminium component manufacturers.
A further concern for the aluminium industry stems from existing and impending environmental legislation and associated customer expectations. Krieg says parts of the secondary smelting and downstream industry sectors need to become increasingly aware of environmental impacts, especially as far as finishing processes are concerned. He says this is expensive, but needs to take place.
One of the foremost difficulties concerning the environment is pretreatment. Krieg explains that there are expectations that environment-friendly products will offer the same performance as previous products, but the reality is that this is not always possible. He says that products that perform efficiently and are environmentally safer than current products still need to be developed.
Meanwhile, Krieg says that the international aluminium industry is growing strongly, demonstrating growth in developing countries, such as China, Russia, the Middle East and India. He says this is mainly caused by environmental pressure against manufacturing industries on developing countries, and the availability and cost of energy and other raw materials.
He adds that alumina, a raw material of aluminium, is mainly sourced in Australia, which is a great distance from developed countries. This also contributes to the industry shift towards developing countries for aluminium production.
Krieg says that climate change is a prominent issue worldwide. The international foundry industry has been taking active steps to reduce its effects on climate change through two methods. The first is by reducing the amount of energy used to smelt aluminium.
This entails the use of more modern, better controlled smelters, resulting in reduced energy requirements of about 10% over ten years.
The industry has also substantially reduced anode effects, which produce perfluorocarbon (PFC) emissions, carbon dioxide equivalents. Krieg explains that anode effects refer to the lack of an ideal distance between an anode and the base of a smelting pot, resulting in the creation of PFCs. He says over the last decade these have been reduced by 90%.
Krieg says that the international aluminium industry is sustainable, and the metal is effectively recycled. He adds that, using known aluminium sources, the planet has enough aluminium for the next 150 years.
“If all the traceable existing aluminium was melted down, this would supply worldwide aluminium needs for 17 years, without the need for further smelting,” adds Krieg.
Krieg says that potential in the industry lies in the large amounts of capital spent on construction and major internal infrastructure, which fuels demand for aluminium and other materials.
The motor industry also appears to be an area of potential growth for the industry. The South African wheel industry manufactures and exports about five-million wheels a year, and the country also manufactures pistons and radiators. Nevertheless, Krieg says the potential in the motor industry depends on the effects of the APDP.
Krieg concludes that the local aluminium industry is positive about its future, despite changed operating circumstances, which will, besides other things, see the doubling of the price of energy in the next five years.