Macro trends like demographics, shifts in global wealth and, especially, sustainability will impact the way all business is conducted.
For the aluminum industry, these trends will combine to create more demand than even the most aggressive projections have so far realized.
With all the newly commissioned smelters and mills in China, India and other developing countries, there's a lot of hand-wringing about the dangers of overcapacity. However, I believe these macro trends will, over the next few decades, create so much demand that we could easily encounter an aluminum manufacturing capacity shortfall.
The burgeoning populations of India, China, Brazil, parts of Africa and Southeast Asia correlate with a rise in urbanization. Indeed, for the first time in history more than half the world's population now lives in cities vs. rural areas. Moreover, because it's concurrent with rapid industrialization, urbanization means economic advancement for those waves of people moving from the countryside to cities.
In just the next few years, more than 2 billion people will graduate from subsistence lifestyles to lives that people in the developed world would recognize as working class. They'll want housing, beverage containers, packaged food, appliances and a host of other products demanded by an ascendant consumer class.
In transportation alone—products like shipping containers, trucks, commuter trains and automobiles—the opportunity is bigger than most observers have recognized.
China and India are on pace to become the third- and fifth-largest consumer economies by 2020, and to challenge or surpass the United States and the European Union in gross domestic product by 2050.
But all that growth comes at an environmental cost. China will produce 44 percent of the world's total greenhouse gas emissions by 2020 and 46 percent by 2050, and India will double its share over the same period. The evidence linking greenhouse gas emissions to environmental degradation is compelling.
Which leaves us with the urgent dilemma of sustainability. The last three centuries of human history have demonstrated clearly that the cure for poverty is industry. Unfortunately, we are now in urgent need of a cure for industry.
Alternative energy sources like wind power, solar power and even nuclear power are solutions that show marvelous potential, but all work more efficiently if the objects of their propulsion are lighter weight. Light-weighting is already inextricably entwined with the next generation of environmentally conscious design. The auto industry is well along this road.
Because aluminum offers light-weighting without compromising strength, the percentage of aluminum in vehicles manufactured in the United States has been slowly climbing for decades—from 2 percent in 1975 to a projected 10 percent in 2020. Obviously, the more aluminum supplants steel in the manufacture of cars, the more light-weighting we can achieve.
Sustainability concerns are pushing this percentage to a tipping point. We may see a sharp turn in the next few years that makes our current demand projections look extremely conservative. The discussions we've been having with automobile manufacturers are more than encouraging on that point. These original equipment manufacturers (OEMs) are looking at more than design advantages. Around the world, government regulators are beating the drum for light-weighting in a way that makes aluminum the most obvious solution.
When the European Union set CO2 emission standards in the early 1990s, and then 10 years later set end-of-life standards for recycling, it resulted in a new generation of hybrid designs featuring light-weighted, aluminum content. New U.S. regulations have set a 35-mile-per-gallon standard for the year 2020, which would increase fuel economy by 40 percent. The most plausible path forward for design engineers is the incorporation of more aluminum components.
China is still industrializing, still urbanizing, still inventing itself. We can't expect China to patiently graduate through generations of technology that have characterized the Western industrial experience. The Chinese will institutionalize the most efficient solutions contemporary technology can provide. And that standard incorporates state-of-the-art light-weighting, and therefore a lot more aluminum.
Indeed, we are already seeing a sort of leapfrog effect in developing nations where the incremental trend lines of Western business history are being superseded by wholesale adoption of new technology.
Novelis Inc. foresees an emerging generation of consumers and regulators ready to assign greater value to aluminum in automobiles, trains, trucks, beverage containers, personal technology, appliances, construction and packaging. In a sustainable business model, this demand is for a metal that is strong, malleable, versatile, recyclable and—most importantly in a world constrained by fuel—light weight.
The global recession has clouded a lot of crystal balls, but our best-informed outlook is extremely bullish for our company and our industry. We believe this will be our time to shine.
Adapted from the Feb. 1 keynote speech delivered at the Platts Aluminum Symposium on Marco Island, Fla., by Philip Martens, president and chief operating officer of Novelis Inc., Atlanta.