We are currently forecasting an average cash London Metal Exchange (LME) price for aluminium in 2001 of $1,500 a tonne or 68 cents a pound. That compares with a 2000 average of around $1,548 a tonne (70.2 cents a pound) and a 1999 average of $1,362 a tonne (61.78 cents a pound). There are three main reasons for our caution about 2001.

The first is that we are seeing a fairly hard landing for the U.S. economy in 2001. This coincides with economic slowdowns in Europe and Asia. So aluminum consumption, in our opinion, is likely to fall by at least 1 to 2 percent in 2001, which equates, on a global basis, to a loss of between 250,000 to 500,000 tonnes.

The second reason for our caution is that primary production should rise by around 800,000 tonnes a year in 2001. This increase, the biggest increase since 1992, is from a combination of greenfield and brownfield expansions. That increase combined with the drop in consumption will more than cancel out the loss of production in the Pacific Northwest.

The Pacific Northwest is bullish, in our view, on a longer-term basis. We have lost more than 500,000 tonnes a year of production in the Pacific Northwest already. And the lower aluminum prices stay, particularly from October 2001 onwards, the more certain we can be that we will see more production cuts in the Pacific Northwest. This is particularly so if electricity prices remain at or above $50 a MWH.

These cuts are certainly not bearish! They will help to underpin aluminum prices. But unless consumption growth is really taking off, which requires a strong U.S. economy with robust growth again in the transport and construction sectors, the cuts in themselves are not enough, in our opinion, to send aluminum prices soaring.

Aluminum industry depends on auto industry

The aluminum industry is crucially dependent on the automotive industry for its growth. Unit aluminum consumption in cars has been showing an annual growth rate of around 6 percent a year and has shown no signs of slowing down.

Nor has the volume of car sales. General Motors said last year that it expects worldwide vehicle volumes to grow from 50 million in 1998 to 65 million vehicles by 2008.

The automotive industry wants both stable and low prices. The more volatile aluminum prices are, the less the automotive industry wants to use aluminum in its long-term model plans. A model platform is usually for six to seven years.

Total primary aluminum usage at present in cars is around 30 to 40 percent of the total aluminum used, depending on which region you are in. But primary usage is now growing much more rapidly in the form of sheet and extrusions. This is particularly true for the fast growing sports and utility vehicle section of the market.

That has to be good news for more primary aluminum being consumed as well as secondary. The gains in average unit use in kilos per car are absolutely breathtaking. In Western Europe, we expect to see a rise of 30 kilos per average car between 2000 and 2005. That is a gain of 33 percent. (A kilo is 2.20462 pounds.) In North America, a jump of 35 kilos per average car is expected, a gain of 25 percent. In Japan, a rise of 22 kilos per average car is expected. This is a rise of 21 percent.

Looking at the rises between 1995 and 2000, the figures are just as breathtaking. In Western Europe, the rise was 29 kilos or 47.5 percent. In North America, the rise was a massive 43 kilos per average car or a rise of 45 percent. In Japan, the rise was 33 kilos or a 44.5 percent increase.

But, we hear you ask, can the growth picture in transport really be that wonderful? And the answer is a firm NO! The first problem is that not all of that consumption growth in transport is going to be from primary aluminum.

Secondary consumption as a percentage of primary consumption continues to rise. This is to be expected and is quite normal in all metal industries. But the automotive industry, in particular, is very keen on keeping as much metal as it can circulating within a closed loop. The average annual growth rate in secondary aluminum consumption during the 1990s has shown a stronger rate of growth at 3.6 percent versus 2.9 percent for primary And, as a percentage compared to primary consumption, it continues to grow quite rapidly and now stands at 47 percent.

The second big problem is the absolute need for the aluminum industry to always build enough new capacity to keep the car industry convinced that the aluminum industry can actually go on supplying the car industry with more and more aluminum each year at stable and fair prices.

To do this you need big bucks. The capital expenditure in dollars per tonne terms is scary It costs around $2,500 a tonne for brownfield expansions and anywhere between $4,000 to $6,000 a tonne for greenfield capacity. Demand for primary metal is growing at around 3.7 percent a year compound.

We are currently forecasting an average cash London Metal Exchange (LME) price for aluminium in 2001 of $1,500 a tonne or 68 cents a pound. That compares with a 2000 average of around $1,548 a tonne (70.2 cents a pound) and a 1999 average of $1,362 a tonne (61.78 cents a pound). There are three main reasons for our caution about 2001.

The first is that we are seeing a fairly hard landing for the U.S. economy in 2001. This coincides with economic slowdowns in Europe and Asia. So aluminum consumption, in our opinion, is likely to fall by at least 1 to 2 percent in 2001, which equates, on a global basis, to a loss of between 250,000 to 500,000 tonnes.

The second reason for our caution is that primary production should rise by around 800,000 tonnes a year in 2001. This increase, the biggest increase since 1992, is from a combination of greenfield and brownfield expansions. That increase combined with the drop in consumption will more than cancel out the loss of production in the Pacific Northwest.

The Pacific Northwest is bullish, in our view, on a longer-term basis. We have lost more than 500,000 tonnes a year of production in the Pacific Northwest already. And the lower aluminum prices stay, particularly from October 2001 onwards, the more certain we can be that we will see more production cuts in the Pacific Northwest. This is particularly so if electricity prices remain at or above $50 a MWH.

These cuts are certainly not bearish! They will help to underpin aluminum prices. But unless consumption growth is really taking off, which requires a strong U.S. economy with robust growth again in the transport and construction sectors, the cuts in themselves are not enough, in our opinion, to send aluminum prices soaring.

Aluminum industry depends on auto industry

The aluminum industry is crucially dependent on the automotive industry for its growth. Unit aluminum consumption in cars has been showing an annual growth rate of around 6 percent a year and has shown no signs of slowing down.

Nor has the volume of car sales. General Motors said last year that it expects worldwide vehicle volumes to grow from 50 million in 1998 to 65 million vehicles by 2008.

The automotive industry wants both stable and low prices. The more volatile aluminum prices are, the less the automotive industry wants to use aluminum in its long-term model plans. A model platform is usually for six to seven years.

Total primary aluminum usage at present in cars is around 30 to 40 percent of the total aluminum used, depending on which region you are in. But primary usage is now growing much more rapidly in the form of sheet and extrusions. This is particularly true for the fast growing sports and utility vehicle section of the market.

That has to be good news for more primary aluminum being consumed as well as secondary. The gains in average unit use in kilos per car are absolutely breathtaking. In Western Europe, we expect to see a rise of 30 kilos per average car between 2000 and 2005. That is a gain of 33 percent. (A kilo is 2.20462 pounds.) In North America, a jump of 35 kilos per average car is expected, a gain of 25 percent. In Japan, a rise of 22 kilos per average car is expected. This is a rise of 21 percent.

Looking at the rises between 1995 and 2000, the figures are just as breathtaking. In Western Europe, the rise was 29 kilos or 47.5 percent. In North America, the rise was a massive 43 kilos per average car or a rise of 45 percent. In Japan, the rise was 33 kilos or a 44.5 percent increase.

But, we hear you ask, can the growth picture in transport really be that wonderful? And the answer is a firm NO! The first problem is that not all of that consumption growth in transport is going to be from primary aluminum.

Secondary consumption as a percentage of primary consumption continues to rise. This is to be expected and is quite normal in all metal industries. But the automotive industry, in particular, is very keen on keeping as much metal as it can circulating within a closed loop. The average annual growth rate in secondary aluminum consumption during the 1990s has shown a stronger rate of growth at 3.6 percent versus 2.9 percent for primary And, as a percentage compared to primary consumption, it continues to grow quite rapidly and now stands at 47 percent.

The second big problem is the absolute need for the aluminum industry to always build enough new capacity to keep the car industry convinced that the aluminum industry can actually go on supplying the car industry with more and more aluminum each year at stable and fair prices.

To do this you need big bucks. The capital expenditure in dollars per tonne terms is scary It costs around $2,500 a tonne for brownfield expansions and anywhere between $4,000 to $6,000 a tonne for greenfield capacity. Demand for primary metal is growing at around 3.7 percent a year compound.

I am not a big believer in a commercial future for the biochemical conversion of cellulose into fuels. There are many big hurdles in place that are going to have to be overcome before cellulose is commercially converted to ethanol. In a nutshell, one is the logistical problem, which I have covered before. Beyond the logistical problem is the issue that biochemistry often starts to malfunction as the conditions in a reactor change, and with cellulosic ethanol that means that if you get a 4% solution of ethanol in water, you are doing well. But from an energy return point of view, a 4% solution is about like the trillions barrels of oil shale reserves we have. If it takes over a trillion barrels of energy to extract and process them, that largely defeats their usability.

Chemistry is a different matter, which is why I favor gasification processes over fermentation processes. But even beyond gasification, I have wondered about chemically processing cellulose in a refinery. I used to have a guy who e-mailed me all the time and told me he had invented a chemical process for reacting cellulose to hexane, which can then be turned into gasoline. If you look at cellulose (there is a graphic of a segment of cellulose at the previous link), you can envision that it could be done. (Whether he had actually done it is a different story).

But the chemistry pathway isn’t limited to fuels. With that preface, I want to thank a reader for bringing this story to my attention. In a recently published story in Applied Catalysis A: General (available online at Science Direct), scientists at Pacific Northwest National Laboratory have reported on a new process for converting cellulose directly into an important chemical building block (e.g., for plastics and fuel):

Single-step conversion of cellulose to 5-hydroxymethylfurfural (HMF), a versatile platform chemical

Now we all know that you can do lots of neat things in the lab that can’t really be done on a larger scale. But this particular process does not appear to be overly complicated. The abstract from the paper explains what they are doing:

Abstract

The ability to use cellulosic biomass as feedstock for the large-scale production of liquid fuels and chemicals depends critically on the development of effective low temperature processes. One promising biomass-derived platform chemical is 5-hydroxymethylfurfural (HMF), which is suitable for alternative polymers or for liquid biofuels. While HMF can currently be made from fructose and glucose, the ability to synthesize HMF directly from raw natural cellulose would remove a major barrier to the development of a sustainable HMF platform. Here we report a single-step catalytic process where cellulose as the feed is rapidly depolymerized and the resulting glucose is converted to HMF under mild conditions. A pair of metal chlorides (CuCl2 and CrCl2) dissolved in 1-ethyl-3-methylimidazolium chloride ([EMIM]Cl) at temperatures of 80–120 °C collectively catalyze the single-step process of converting cellulose to HMF with an unrefined 96% purity among recoverable products (at 55.4 ± 4.0% HMF yield). After extractive separation of HMF from the solvent, the catalytic performance of recovered [EMIM]Cl and the catalysts was maintained in repeated uses. Cellulose depolymerization occurs at a rate that is about one order of magnitude faster than conventional acid-catalyzed hydrolysis. In contrast, single metal chlorides at the same total loading showed considerably less activity under similar conditions.

So they take cellulose and react it with two metal chlorides at 80–120°C for a direct conversion of cellulose into HMF – which can be easily converted to fuel or plastics. I would think then the important considerations would be 1). What happens to the lignin and hemicellulose in the biomass?; and 2). How much energy does it take? The second item is particularly important if fuel is the objective.

While it is too early to tell whether there is a fatal flaw, this one certainly bears watching. It also strengthens my conviction that in the long-run, the right way to process cellulose is chemically.