The worlds biggest carmakers could confront a possibly devastating lack of aluminum. The main reason lies in the Chinese energy crisis that disrupts their magnesium supply, from which aluminum is made.
Aluminum is an alloy of magnesium. This alloy is used to make every part of a vehicle. From gearboxes, seat frames to any part of the vehicle which is neither leather, cloth, plastic nor steel. The power crisis forced the Chinese to close 35 out of 50 magnesium smelters to conserve power.
What accentuates this problem is that China has a near-monopoly of the world magnesium supply. The European stockpiles are dwindling dangerously low and the most shocking fact is that it is only the beginning.
Many metal companies and analysts have sent distressing reports of the scarcity, and with no substitution option insight, it could even threaten global automobile production. This alone shows how China under power crisis can affect global supply chains.
This has the potential to drive up prices from key industrial materials to consumer goods. It also brings in the threat of inflation. Last year, if the automobile industry faced a shortage of semiconductors, it is magnesium scarcity this year.
Around 85% of the world’s magnesium comes from China, and most of it is from one town in the Shaanxi area, Yulin. A month prior, the local administration requested 35 of its 50 magnesium smelters to close until this year’s end. They also asked the rest to cut energy production by 50% to hit energy utilization targets.
At least 35-40 megawatts of power are needed to produce one ton of magnesium, compared to 16 MHW of aluminum production. To make matters worse this metal is hard to store as it oxidizes within three months. This could decrease the stock even more.
This has been reflected in costs, with the cost of imported magnesium in Europe shooting 75% over the previous month to a record high.
Several industrial groups and associations like WV Metalle, European Aluminium, are pressuring the EU and the national governments to talk with the Chinese government to work desperately towards prompt action with their Chinese counterparts. There is even fear that the Chinese will redirect existing production for domestic industry.
There were European production companies, who were forced to shut down due to cheaper Chinese imports. This dangerous trend led to over-dependence over China, which resulted in the present-day listing of this element in the EU’s list of critical raw materials.
While Europe is reeling under the consequence of over-dependence, North America brags one huge domestic metal producer, US Magnesium, which was offering a level of security. They are even using scraps on an aggressive scale to keep up the demand.
The million-dollar question is whether China will restart its magnesium production before this year-end. Considering the importance of aluminum in their economy, it is a reasonable yet risky hope.