CRU Aluminum: Magnesium in the US – a Gap in Critical Materials

Kaiser’s mill specializes in the production of food container and beverage can end/tab stock. Both products are in the 5000 series alloy family, which contain 4-4.5% magnesium. The US aluminum food container and beverage can market has an aggregate production of about 600,000 tons per year.

This means the implied magnesium demand from just this sector is about 25,500 metric tons per year. Kaiser is a very part large of this aggregate demand, and this does not begin to count the magnesium consumed in other aluminum rolled products or extrusions.

In October 2021, Matalco, the leading third party producer of secondary extrusion billet warned that it was having problems securing sufficient magnesium for its needs. Secondary billet does not consume the same amount of magnesium by percentage as food containers or beverage cans, about 0.7% in standard 6063 alloys. However, the volumes are big……Matalco’s annual capacity is over 800,000 metric tons alone. So, on paper, they consume about 5,000-6,000 tons of magnesium per year.

Hence, the Kaiser force majeure has raised concerns again about a broad shortage of magnesium across the entire spectrum of the aluminum industry.

Not the first warning about magnesium shortages 

Last fall, the market had a major panic attack when the Chinese began to reduce production of primary magnesium due to electricity shortages. China produces 90% of the world’s magnesium and supplies virtually everything that Europe consumes. At the time, there were serious concerns that the aluminum beverage can mills in Europe might halt if Chinese exports were cut off.

Here in the US, the concerns were mixed. The US does not rely on Chinese magnesium for its supply, as Chinese magnesium is barred from entry by antidumping and countervailing duties. Instead, its supplies come from the only remaining magnesium producer here, US Magnesium, plus imports from Canada, Israel, and Russia. Russia represented 36% of US imports during 2021.

While prices have risen on magnesium, there was no real concern about physical shortage…or so we thought. Spot primary magnesium is $8.75 per pound, up from $6.58/lb at the beginning of 2022 and $2.33/lb at the start of 2021.

US Magnesium has been a troubled operation 

In September 2021, US Magnesium (USM) declared force majeure on its domestic shipments from its operations on the Great Salt Lake in Utah. The company offered little detail as to why it made the declaration.

It is noteworthy that it had been involved in protracted negotiations with the US Environmental Protection Agency (EPA) for several years over violations of the Resource Conservation and Recovery Act (RCRA). The EPA had sued USM for the alleged illegal disposal of hazardous waste at its facility. In January 2021, the parties reached a settlement where USM agreed to remediate the problem by building a containment barrier around 1,700 acres of its plant, constructing a filtration plant to treat its wastewater, and financial reserves to clean-up and eventually close the affected site. The settlement provided for USM to spend $37 million to execute the settlement and pay a $250,000 civil penalty.

We do not know if USM’s force majeure was related to its inability to execute the EPA settlement, but our sources indicate that USM has not been very forthcoming on how and when they would lift its force majeure declaration.

Kaiser’s force majeure statement was unequivocable:

“Although US Magnesium had continued to supply approximately 50% of its contractual commitment to Kaiser Warrick, deliveries have recently stopped,” Kaiser said. “Kaiser Warrick has been unable to immediately source additional magnesium from alternative sources and has begun adjusting production levels based on the amount of magnesium currently available and otherwise scheduled for delivery from other suppliers.”

Kaiser filed suit against USM in April 2022 alleging breach of contract and argued that USM had “Based on information obtained by Kaiser, it appears that the equipment at issue was poorly maintained, its breakdown foreseeable, and not reasonably beyond US Magnesium’s control,” according to the court complaint. “Thus, the force majeure declaration was improper.”

Is Kaiser a unique case or the first of many?

Our discussions with other magnesium consumers say that the supply situation is very tight, but they are not at a point of having to follow Kaiser’s force majeure declaration. Other mills and casting extruders can obtain magnesium indirectly in the form of high magnesium scrap. Kaiser has some capability in this respect, but not as much as others. This would be 5052 segregated alloys, Class II (which is end/tab scrap from can making operations) plus some magnesium castings.

We also see stable imports from Dead Sea Magnesium and the Russians…for now. Recent Congressional action against the Russians stripping them of Most Favored Nation status has so far NOT been extended to either primary aluminum (HS Code 7601) nor primary magnesium (HS 8104), so Russian magnesium is still flowing.

There is also some relief on the horizon from new North American primary production. Alliance Magnesium has begun producing magnesium in Quebec from serpentine mining tailings. They aim to produce over 50,000 metric tons per year in the next two years. To put this into context, USM advertises itself as capable of producing 63,500 metric tons per year. Given USM’s operational and legal challenges, the arrival of Alliance on the scene could not come at a better time to alleviate yet another critical material shortage.

By Greg Wittbecker, Advisor, CRU Group, Gregory.Wittbecker@CRUGroup.com

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