The Crisis No One is Talking About America’s Manufacturers Under Fire Michael Goldstein and Jon Paul Morrow
ABSTRACT
Just as onerous regulations are tightening in the energy industry and causing electricity prices to skyrocket, a trend which will accelerate in the coming years, the federal government has imposed more strict CAFE (Corporate Average Fuel Economy) standards for America’s automotive industry. The higher fuel economies the CAFE standard imposes drive automobile manufacturers to the use of more aluminum and plastic in our automobiles: Lower vehicle weight equates to higher fuel mileage. The availability of economical aluminum and plastic is dependent upon low cost electricity and raw materials, which manufacturers in America will be hard pressed to find due to the regulatory climate imposed by Congress and the regulators of the federal executive branch. This paper identifies a major crisis that is confronting automotive manufacturers and their suppliers right now, and which will become much worse in the coming years, unless there are major changes in the regulatory regime and the introduction of a “disruptive technology” which will greatly reduce energy prices in the United States.
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Table of Contents The Roadblocks ..................................................................................................................... 3 Demand and Markets for Aluminum ..................................................................................... 4 Transportation ...................................................................................................................... 5 Automotive ............................................................................................................................ 5 Aerospace .............................................................................................................................. 5 Packaging .............................................................................................................................. 6 Construction .......................................................................................................................... 6 Electrical ............................................................................................................................... 6 Importance of the Aluminum Industry in America ................................................................ 6 China’s Growing Dominance ................................................................................................ 7 Supply of Aluminum in China ............................................................................................... 7 Aluminum Processing ............................................................................................................ 8 Energy Use ............................................................................................................................. 9 A Vicious Spiral ..................................................................................................................... 9 How Thorium Energy Will Help the American Aluminum Industry! .................................... 9 Drastically Reduced Electricity Costs ................................................................................................. 9 Extraction of Alumina from Waste Products of Coal ....................................................................... 10 Extraction of Thorium from Waste Products of Coal ....................................................................... 10 CONCLUSION .................................................................................................................. 11
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The Roadblocks Although there is a very high worldwide demand for aluminum, as will be seen below, the American aluminum industry is hamstrung in its goal of meeting this demand by a series of outsized costs, including the cost of building a new plant; regulatory costs; and energy costs. Plant costs and regulatory costs must be addressed by the industry and by their federal, state, and local governments. A steep reduction in energy costs, which constitute a very large portion of the cost of producing aluminum presently, can and will be addressed by the production and operation of the LFTR (Liquid Fluoride Thorium Reactor). What would it cost today to build a typical aluminum reduction plant with an annual production capacity of 250,000 tons? Based on the most recently completed plants, an estimated $1.5 billion would be required. Add to this the regulatory requirement that this new smelter provide its own generating facilities to provide the large amounts of electricity needed for processing the aluminum which it will produce, and that it meet governmental regulatory emissions goals. This will increase the installation cost by $300 million to $406 million. Now we are pushing the $2 billion mark for a new aluminum smelting plant. All of this assumes that a suitable site location can be found with the necessary support services, and that the site will be approved by all the relevant federal, state, and local regulatory agencies, and in a timely manner. Today in the United States it would take several years to get the required permits and clearances. This would involve the need for environmental impact studies and reports, and hearings with many regulatory agencies and local and national governments, with no guarantee that final approval would not be challenged by court appeals. Such cumulative considerations, when combined with the present unavailability of needed energy at a competitive price, lend some credence to the often heard statements that another aluminum smelter plant will not be built in the United States. These roadblocks must be overcome for American industry to take advantage of the huge worldwide demand for aluminum. Americans’ jobs and America’s prosperity are at stake.
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Demand and Markets for Aluminum There is an enormous market for continued and increased production of aluminum in the United States. Like oil, the world cannot get enough aluminum. China and India’s reach from the third world to the first world has dramatically increased the demand for aluminum. Top market sectors for the industry are transportation, including automotive and aerospace, beverage cans and other packaging, building/construction, and the electrical industry. Chinese demand, as measured by Chinese consumption of unwrought aluminum, grew almost every year during the 1995-2004 period, nearly doubling between 1995 and 1999, and subsequently more than doubling between 1999 and 2004. Over the full 10-year period, Chinese consumption rose nearly three-fold (up 4.0 million metric tons) to reach 5.9 million metric tons by 2004, equal to 20.1 percent of global consumption in that year. From 2004 to 2012 there was nearly a four-fold increase in Aluminum consumption. In contrast to developed countries where the transportation sector dominates, building and construction is the largest aluminum-consuming sector in China, a reflection of ongoing building construction and infrastructure development and significantly lower per capita automobile ownership. In addition, the share of Chinese aluminum consumption accounted for by electrical products and consumer durables exceeds that of many industrialized nations, a reflection of both the country’s growing export-oriented manufacturing sector and its rising domestic consumer markets.
China’s relatively low per-capita consumption rate for unwrought aluminum, coupled with its expanding industrial activity and government housing programs, suggest that Chinese demand for aluminum will continue to grow, particularly in the construction and automotive sectors. An estimated 3.3 million apartments are being built every year in China, averaging approximately 240 million square meters of new housing each year.
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Transportation Integrating lightweight aluminum into transport vehicles is one of the easiest ways to reduce the amount of fuel our vehicles consume. If conservation is a goal of America’s energy plan, then the use of lightweight and more affordable aluminum should be part of that plan.
Automotive In 1994, transportation first emerged as the largest market for aluminum, at about one-quarter of the market, with passenger cars accounting for the vast majority of the growth. Up until 2009, that trend largely continued. However, 2009 marked the worst year for auto sales since 1982 and, as such, transportation applications accounted for only 23.7 percent of all aluminum shipments in 2009 - 4.22 billion pounds in all. The majority of this aluminum was used in automotive and light truck applications, as vehicle manufacturers continue to opt for lightweight aluminum solutions to improve fuel economy, reduce emissions, and enhance vehicle performance, for which aluminum is ideal. Accordingly, the aluminum content in passenger vehicles and light trucks has grown more than 40 percent and 68 percent, respectively, since 1991. Aluminum-intensive automobiles include the Audi A8 with its aluminum body, aluminum front and rear axle, aluminum engine block, and numerous other aluminum components - and the Jaguar XK, with its aluminum body structure. The China automobile market is expected to surpass that of the United States in 2014, which will result in more aluminum usage. Ownership of private automobiles in China is expected to increase. According to the Central Government, vehicle sales in China may rise to 20 million units in 2014 (from 5.1 million in 2004). By 2010, Chinese aluminum usage in automobiles was anticipated to approach 5 million metric tons.
Aerospace In the aerospace market, increased build rates for both military and civil aircraft have led to increased demand for aluminum. For example, between 1995 and 2004 U.S. production increased from 1,625 to 3,440 aircraft per year, despite a significant drop-off in production after the September 11 attacks. A new surge of aircraft orders in 2005 has sustained aerospace industry demand for aluminum through 2013, even in America’s slow growth economy (new orders are expected between 2014 through 2016 to replace aging aircraft).
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Packaging Demand for aluminum packaging, consisting mostly of flat-rolled aluminum sheet for beverage cans and foils for food packaging, has dramatically increased in China and India as their standard of living increased. Adding to this, many new applications for aluminum beverage cans have been introduced, particularly for energy drinks and beer. Additionally, the packaging market reflects increasing trends for prepared and frozen meals and blister-packaging for pharmaceutical products.
Construction In the construction market, leading uses of aluminum are for window frames, doors, siding and facades, closely followed by support framing for roofs and walls. The construction market has been particularly strong in the industrializing economies of China and India.
Electrical Aluminum has many advantages for electrical applications. It is lightweight, strong, corrosion resistant, and a highly efficient conductor (aluminum has twice the conductivity, per pound, of copper)—rendering it the material of choice for widespread applications such as transmitting power from generating stations to homes and businesses, and to make electronic boards for computers and handheld electric devices such as cell phones. Aluminum is also infinitely recyclable, making it a perfect fit for today’s environment and environmental priorities.
Importance of the Aluminum Industry in America Aluminum is one of the few products and industries left in America that truly impacts every community in the country, either through physical plants and facilities, recycling, heavy industry, and/or consumption of consumer goods. China is rapidly dominating aluminum markets, from securing mineral rights to many foreign countries’ bauxite formations, to building refining and smelting plants in China. All the while, America is not constructing any more aluminum manufacturing plants due to environmental regulations and electricity costs.
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So, it is in America’s best interest to lower the manufacturing costs of aluminum, to produce aluminum economically and with a high degree of environmental responsibility for our nation’s greater economic security.
China’s Growing Dominance America exports much of its recycled Aluminum. A discarded soda has a 75% chance of ending up in China. China’s impact on the global market has been significant in three principal ways. First, China’s need for alumina to fuel its expanding aluminum production has driven alumina prices to record highs, narrowing profit margins for producers of unwrought aluminum, and contributing to restructuring throughout the industry. Second, anticipation of growth in China’s demand for aluminum has increased production capacity worldwide. New countries have emerged as leading players in world markets as firms look to streamline operations and take advantage of low-cost electric power. Finally, China’s role in the global marketplace has expanded significantly as state-owned Aluminum Corporation of China (Chalco) has emerged as one the world’s leading aluminum producers and China has moved from a net importer of aluminum to a net exporter. Looking forward, it is uncertain whether Chinese aluminum output can keep pace with anticipated growth in domestic consumption from its rapidly urbanizing economy and that of India, and their expanding industrial production. If China does not receive help in producing more aluminum for the world market, aluminum prices could rise dramatically.
Supply of Aluminum in China In 2005, 40 percent of China’s smelters were operating at a loss, and an estimated one-quarter of Chinese capacity was idle. Additionally, the Chinese aluminum industry’s rapid expansion risked overwhelming the world market, leading to sharp declines in the global market price for unwrought aluminum. Today, all of China’s smelters are realizing a profit and the price of aluminum is high due to China’s policies in regulating the aluminum market. Inadequate electricity supply and the lack of high-quality bauxite constrained faster expansion of Chinese aluminum production. For example, inadequate and uncertain electric power supplies had prevented expansions of several primary-smelting operations. As new coal and nuclear power
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plants come on line, the problem of inadequate power supply is being erased. Additionally, China currently relies on imports for an estimated one-half of the alumina necessary to meet its aluminum smelting needs, as the mineral content of the Chinese bauxite renders it more expensive and difficult to refine than bauxite available elsewhere. The only major supplier of alumina from domestic sources in China is Chalco, which has traditionally supplied many Chinese aluminum smelters with alumina through contracts priced below the cost of imports. Imported alumina usually reflects the spot market price. However, as Chalco has expanded its production of domestic unwrought aluminum, the firm has reduced sales of alumina in order to supply its own smelters and has raised the price at which it sells alumina to other firms outside the country. Chalco’s actions have increased market demand for alumina, causing worldwide prices for alumina to rise significantly. Future prospects for growth in China’s production of unwrought aluminum depend on further progress in addressing high-cost and inadequate supplies of alumina and electric power, upgrading outdated smelting technologies, and complying with potentially strict government measures to rein in production overcapacity (Chinese price controls are not unlike OPEC’s price controls of the oil market) in the aluminum industry.
Aluminum Processing In order to understand the nature of the non-regulatory costs of aluminum production, it is first necessary to understand how aluminum is created and the breakdown of the costs of its manufacture. Aluminum does not occur in nature as a metal, but in the form of deposits of bauxite ore. Unfortunately, at present there is no domestic source of bauxite, and U.S. aluminum manufacturers import 100% of their bauxite ore from Jamaica, Guinea, Brazil, Guyana, China, Sierra Leone, and Greece. Bauxite is mined, and by a two-step chemical process, the bauxite is refined into an oxide called alumina - one of the feed-stocks for aluminum metal. The end of this alumina creation is a drying process which requires large quantities of heat energy. Aluminum is made from alumina, and this process requires enormous amounts of electricity. Alumina and a molten electrolyte called cryolite are combined in a cell. Direct current electricity is passed from a consumable carbon anode into the cryolite, splitting the aluminum oxide into molten aluminum metal and carbon dioxide. The molten aluminum collects at the bottom of the cell and is periodically "tapped" into a crucible and cast into ingots which are then sold to customers which process the metal into its various applications.
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Energy Use
The aluminum industry is a major industrial user of electricity. Because the electrolytic process is the only commercially proven method of producing aluminum, the industry has on its own pursued opportunities to reduce its use of electricity. In the last 50 years, the average amount of electricity needed to make a pound of aluminum has been slashed from 12 kilowatt hours to about 7 kilowatt hours, but the aluminum industry is constantly searching for ways in which energy and other production costs can be reduced. Although continual progress has been made over the 125-year history of aluminum processing to reduce the amount of electricity used, there are currently no viable alternatives to the electrometallurgical process.
A Vicious Spiral
Electricity is a huge component of the manufacturing cost of aluminum (30% to 40%). As energy costs increase, so does the price of aluminum. This cost increase of aluminum, caused primarily by the rise in electricity costs, results in less aluminum being incorporated in the manufacture of automobiles. This, in turn, increases the weight and lowers the fuel economy of our vehicles, and raises our use of and dependence on imported fossil fuels. The more affordable aluminum is, the less dependent we are on other countries for transportation fuel derived from oil.
How Thorium Energy Will Help the American Aluminum Industry!
Drastically Reduced Electricity Costs
Thorium Molten Salt Reactors (THMSR) will revolutionize for the better the American aluminum industry in several ways. Most effective is thorium power’s production of electricity at $.02/kilowatt hour, which is one-half the cost of coal ($.04/kilowatt hour), one-third the cost of natural gas (presently $.06/kilowatt hour, although expected to rise significantly in the near future due to increase in domestic usage and nearly completed arrangements to export significant quantities overseas), one fourth the cost, one-fourth the cost of traditional nuclear ($.08/kilowatt hour), and at one-sixth the cost of wind energy ($.12/kilowatt hour). As stated above, the electricity costs to smelt aluminum constitute 30% - 40% of total manufacturing costs. Depending on the fuel for the production source of the electricity being used, this electricity cost will be cut by at least 50%. Because of the increasing regulatory burden being placed on coal fired power plants, and the turn to natural gas, it is likely that the aluminum smelting electricity
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costs will be cut by two-thirds by use of THMSRs. This is sure to have a salutary effect on the building of new aluminum plants and the creation of jobs in the industry. Because electricity this cheap will dramatically reduce the cost of making aluminum, which will lower the market cost of aluminum significantly, aluminum will become more attractive to auto manufacturers. The resultant reduced weight of vehicles will help America conserve transportation fuel and make America less dependent on foreign countries for its transportation fuel needs. Less demand for oil can translate to lower fuel costs. In addition, in creating this very inexpensive electricity, and unlike with coal and natural gas, the THMSR will be a non-polluting and non-carbon emitting energy source.
Extraction of Alumina from Waste Products of Coal Again, there is no domestic source of bauxite ore to use for aluminum production; it all must be
imported. However, there are abundant domestic sources of aluminum other than bauxite. Notable among them is coal ash or fly ash, a “waste” product of the combustion of coal. There are landfills nationwide replete with coal ash from historical burning of coal, and we produce 60 million tons per year. Aluminum oxide is a major constituent of fly ash (14.8%). If this could be recovered from the fly ash produced in the United States, bauxite would not have to be imported. Coal’s “waste” product is, in reality, a strategic resource important to the United States. A large part of the process of removing aluminum oxide from fly ash requires the use of a lot of heat. Providing that heat by use of the burning of coal or natural gas is both expensive, and involves a large carbon footprint. A THMSR produces abundant process heat; it runs much hotter than a traditional nuclear reactor. THMSRs will produce, without any carbon footprint, sufficient heat required for the process of separating aluminum from coal ash. Combining affordable heat conversion and the affordable electricity necessary to “smelt” aluminum, both being derived from the same THMSR, there then begins to emerge great market potential for the aluminum industry in the “Coal Ash to Aluminum process”.
Extraction of Thorium from Waste Products of Coal Coal ash also contains Thorium. If a THMSR is used to drive the process of Aluminum conversion, 100% of the Thorium could be extracted from coal ash and be used to fuel the “Coal Ash to Aluminum” production process.
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CONCLUSION Without significant changes in regulation, availability and price of its raw materials, and availability of low cost energy in the form of heat and, in particular, of electricity, aluminum production in the United States, and the jobs and prosperity which result from it, will end. Adoption of LFTR technology will solve all these problems. ! EPA carbon emission regulations will not be applicable to electricity and heat generation by a LFTR because LFTRs will have zero carbon emissions. This will relieve the energy production and aluminum production industries of one of their heaviest regulatory burdens. ! Despite the lack of a domestic U.S. source of bauxite, enough aluminum oxide can be recovered from fly ash, using LFTRs as the non-carbon producing heat source for doing so, to provide for all domestic needs for the raw materials to produce aluminum in America. ! Electricity is the largest component of the cost of producing aluminum, and the cost of LFTR-produced electricity at half the cost of coal, and at onethird the cost of natural gas, will revitalize the U.S. aluminum production industry. Â