South32 Ltd. expects strong demand for aluminum and base metals amid the global clean energy transition, which is providing support to aluminum prices that are hovering around historic levels.
"Over the last five to 10 years, the industry has been very focused on iron ore … but I think now as you move more into the world of decarbonization with a need for some of these metals to a greener world, people are starting to really think about what alumina or aluminum looks like, what does zinc look like," CEO Graham Kerr said in a Feb. 17 media call.
Assuming global warming to be limited to 1.5 degrees Celsius above pre-industrial levels, Kerr expects aluminum is going to more than double production, with copper, zinc and silver to play an important role in renewable energy sectors including solar panels, wind turbines and electric vehicles. However, there is a low level of investment in copper and zinc over the last 10 years, the CEO said.
"[There are] not many projects that are shovel-ready to go ... so I think medium- to long-term, aluminum, zinc, copper and silver are going to be really interesting commodities. ... [That is] why we're shifting our portfolio that way," Kerr said, adding that 75% to 80% of South32's future revenue might come from those metals. In the first half of its fiscal 2022, about 68% of the company's revenue was generated from base metals, including aluminum, alumina, zinc-lead-silver and nickel.
The bullish view came as South32 made a net profit of $1.03 billion in its fiscal first half, up from $53 million a year earlier, thanks to surging commodities prices. The board declared an an interim dividend of 8.7 cents a share, up from 1.4 cents a year ago, and decided to add $110 million to its ongoing capital management program.
In addition to strong global aluminum demand, long-term alumina prices will be supported by Chinese domestic bauxite depletion, environmental policy and higher raw material costs, Kerr said in an analyst call on the same day. Bauxite is the principal ore of alumina, which is the key material to produce aluminum. South32 expects China's bauxite ore imports will account for 89% of total consumption by 2030, up from 39% during 2001 to 2011.
South32 is planning to acquire a 45% stake in the Sierra Gorda copper mine in Mexico, which is expected to close in February. It is also increasing investment in green aluminum by raising shareholding in the Mozal aluminum smelter in Mozambique, and participating in the restart of the Alumar aluminum smelter in Brazil using renewable energy, Kerr said.
Aluminum cash prices on the London Metal Exchange reached a 33-year high at $3,290 per tonne on Feb. 16. Kerr said the recent rally was driven by the expectations of further Chinese and European smelter cuts, declining Chinese inventories and Europe's energy security amid Russia-Ukraine tensions. Kerr expects aluminum prices will sit around the $3,000 per tonne mark before falling to nearly $2,800/t over the next 12 months.
