Despite very favourable market conditions and prices, the Canadian aluminum industry in Quebec remains hesitant to increase capacity due to certain factors, starting with the lack of long-term predictability of carbon prices under the carbon cap and greenhouse gas trading (SPEDE) regime.
We don’t have a long-term price on carbon,” said Jean Simard, president and CEO of the Canadian Aluminium Association. It’s hard to make investment decisions in this situation.”
Canada’s Quebec carbon market was launched in January 2012 to ensure that companies covered by the system, including aluminum smelters, must account for the cost of their greenhouse gas emissions. This market mechanism is used to introduce the cost of carbon into the business or investment decisions of taxable companies.
According to Jean Simard, what is causing uncertainty is that the next round of SPEDE, which will take effect in 2024, with its hedging allocation mechanism to maintain competitiveness in key energy-intensive industries exposed to international trade risks is unclear.
This schedule could lead to additional time lags,” he said. The result is that it is not possible to model the actual cost of coal over time or to measure the financial impact of short-, medium- and long-term investment projects.”
A predictable federal carbon tax
At the federal level, this is predictable because we already know, for example, that the carbon tax will reach $170 per ton by 2030. However, thanks to SPEDE, Quebec companies do not have to pay the federal tax.
Jean Simard notes: the stakes are high for Quebec’s aluminum smelters, as an investment project in the sector remains in the billions of dollars over a timeframe of at least 25 years.”
Canadian aluminum production totals 3.1 million tonnes per year, accounting for 2% of Canadian exports. The Canadian aluminum industry is concentrated in Quebec, with eight plants and only one (owned by Rio Tinto) located outside the province, in Kitimat, British Columbia.
In the view of Pierre-Olivier Pinot, an energy expert at the École Supérieure de Commerce de Montréal, the biggest uncertainty facing Quebec’s aluminum smelters may not be the price of carbon, but how much free subsidy they will receive after 2023.
“The provincial government has not yet announced the final rules for free allowances. For now, aluminum plants are enjoying a generous free allowance. That may not last, he said in an email.
Factors favoring increased production
To be sure, this uncertainty at Quebec’s eight aluminum smelters comes at a critical time for the growth of global aluminum production.
First, prices are very high. on april 13, with the new crown epidemic spreading globally, aluminum was trading at $3,238 per ton, more than double the march 2020 low (on a weekly basis). the price in march was even over $3,500.
Second, Russian aluminum exports to both the U.S. and the EU are expected to continue to decline following Russia’s invasion of Ukraine, a downward trend that has been observed in recent years. Therefore, the reduction in Russian supply will have to be met by another offer.
Third, according to an analysis by the International Aluminium Association, global demand for aluminum across all industrial sectors will grow by nearly 40% by 2030.
Thus, to meet this demand, global annual production will have to increase by 33.3 million tons, from 86.2 million tons in 2020 to 119.5 million tons in 2030.
Three aluminum producers in Quebec could not tell us if they intend to or are exploring the possibility of increasing capacity in the foreseeable future due to very favorable market conditions and prices.
Alcoa awaits new technology
Alouette sent us to AAC. Alcoa Canada says it continues to improve its processes throughout its operations.
For example, last March, Alcoa completed an energy infrastructure project ($47 million) at its Fort Deschamps aluminum plant that will provide greater current to the electrolyzer and allow for increased aluminum production in the coming years, spokeswoman Anne-Catherine Couture wrote in an email. “
In an article published by S&P Global last November, Alcoa management stressed that it does not intend to build a new aluminum smelter using the traditional electrolytic process.
Alcoa President and CEO Roy Harvey said that, in fact, any plans by Alcoa to build new aluminum smelting capacity in its global operations will depend on the successful development of its Elysis inert anode technology, which is expected to reach commercial deployment in 2024.
At Rio Tinto, a Canadian spokesman noted that the company is closely monitoring market developments and does not take them for granted, as aluminum prices have been relatively low at times over the past decade.
In an e-mail, he noted, “We manage our business and make decisions with a long-term perspective, not based on short-term fluctuations.”
That said, it noted that Rio Tinto has recently added capacity in Quebec.
The aluminum producer has built 16 new AP60 electrolyzers at the Jonquière Complex and launched a study to add more, not to mention investing $430 million (C$541 million) in its Saguenay-Lac-Saint-Jean plant in 2021.
Post time: Apr-16-2022