The catastrophic impact of Chinese magnesium supply shortage on the aluminium industry.
Europe’s industry associations European Aluminium have announced an urgent call for action against the imminent risk of Europe-wide production shutdowns as a consequence of a critical shortage in the supply of magnesium from China. Magnesium is a key alloying material and widely used in the metals producing industry. Without urgent action by the European Union, this issue, if not resolved, threatens thousands of businesses across Europe, their entire supply chains and the millions of jobs that rely on them.
Due to the Chinese Government’s effort to curb domestic power consumption, supply of magnesium originating from China has either been halted or reduced drastically since September 2021, resulting in an international supply crisis of unprecedented magnitude. With the European Union almost totally dependent on China (at 95%) for its magnesium supply needs, the European aluminium, iron and steel producing and using industries together with their raw materials suppliers are particularly impacted, with far-reaching ramifications on entire European Union value chains, including key end-use sectors such as automotive, construction and packaging.
Figure 1 - Evolution of magnesium production per region (1990-2017)[below]
The current Chinese supply shortfall has already resulted in record prices and worldwide distortions in the supply chain. Today’s remaining magnesium imports are trading at extortionate prices of about $10,000 to 14,000$/mton, up from approximately $2,000/mton earlier this year, making it almost impossible for European companies to produce or source magnesium-containing materials at a viable level. Europe is expected to run out of magnesium stocks by the end of November, with production shortages, business closures and associated job losses to follow.
To that effect, the European industries have jointly called upon the EU Commission and national governments to urgently work towards immediate actions with their Chinese counterparties to mitigate the short-term, critical shortage issue as well as the longer-term supply effects on European industries.
The magnesium market:
Annual demand: 1.2 million tonnes, with 87% being produced by China and 39% being used by China.
Europe and North America use each around 19%. Japan uses 4%.
Europe is particularly hit by the current supply shortage since almost all magnesium used in Europe is imported from China.
Source: CM Group, The Magnesium Report 2017, July 2018, p.60.
Figure 2 – Magnesium using sectors (Europe and worldwide)
Source: European Aluminium, 2021 (below)
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