When after World War II plastic entered our lives in the form of appliances, disposable household items and packaging, no one could have guessed that 60 years later we’d have to face an evergrowing tsunami of almost indestructible waste. We produce 380 million tons of plastic every year, of which nine per cent are recycled in one form or the other, 12 per cent burned and the rest skipped in landfills and spilled into the world’s oceans – plastic flotsam increases by 10 million tonnes per year, or 30 times the volume of the Empire State Building. We are told to sort our waste to be recycled, when in truth recycling means in most cases, and certainly in Malta, export to countries which take our trash for money to skim it for reusables, while the rest will scatter the earth.

The way recycling is handled is cumbersome for us while yielding little. Ecommerce with ever shorter-timed, single deliveries involving elaborate packing will compound our predicament by a few magnitudes. The best way to reduce trash would be to avoid letting it accumulate in the first place by avoiding unnecessary packaging, reusing containers and by using easily recyclable materials like glass and paper.

Plastics are hard to recycle, because plastic is not plastic. There’s polyethylene, PET, polystyrene, or acryl to name a few, and they cannot be melted all into one and then make something pretty out of it, although an Israeli company has recently claimed to add food waste to the mix and was allegedly achieving miraculous results. Must involve a lot of pre-sorting, I would guess, demanding kibbutz-style voluntary labour on a grand scale. And metal is not metal too. Yet aluminium is superior.

While most metals like iron, copper or gold are with us for millennia, aluminium came late. Attempts to produce the metal date to the 18th century, yielding first results in 1824 when the Danish physicist Hans Christian Orsted took notes of a process which was difficult to reproduce. The metal became fashionable in Victorian times, but was first so expensive that aluminium wedding rings were dearer than gold. The process of transforming bauxite, the aluminium ore, into the raw material alumina and then in an electrolytic process into aluminium took off in earnest only after World War II.

Today we produce 60 million tonnes of the primary stuff and about the same amount from scrap metal. The silvery-white material is non-corrosive, non-toxic, non-carcinogen, easily mouldable yet sturdy when alloyed and light as plastic, which makes it inexpensive to transport. To recycle it with a mere 15 per cent loss of volume requires 95 per cent less energy than producing aluminium from ore, reducing thereby the environmental impact of mining and downstream production significantly.

A suitable material to contain anything from toothpaste to drinks, from household chemicals to liquid detergents, it seems to be the perfect stuff to produce attractive containers in all sizes and shapes, not just beer cans which litter our parks and open spaces, and a valuable raw material which could be recycled for a profit instead of subsidising waste. And the beauty of it is that the recycled metal is of the same quality as primary aluminium, which cannot be said with confidence of recycled paper or plastic.

Aluminium is today used in construction (26 per cent), in aviation and auto transport (25 per cent), machinery (10 per cent), for foils (15 per cent), but only 15 per cent of it for packaging – mostly beers and soft drinks. Aluminium can be used for anything from aeroplanes to electronics, from satellites to pans and pots.

If my hope for a wider use of the metal would take off one day, and demand would therefore soar, shouldn’t we enthusiastically invest in aluminium miners and smelters now? What are the possible pitfalls?

While most metals like iron, copper or gold are with us for millennia, aluminium came late

If the economic cycle of aluminium and the fortunes of its producers over the past decades are any indication for their long-term potential, and I think they are, then any investment by retail investors like us promises to end sadly. Aluminium was traded for $2,300 after the war. As at 2019, it hovers around $1,800. Processing costs have certainly come down and technology became more productive. And there is certainly no shortage of bauxite, the aluminium ore. The world will never run out of mining possibilities, even when most viable ore deposits are today concentrated in countries like Australia, China, Guinea, India or Brazil.

The main cost factor is therefore not so much the price of bauxite, or alumina, but of electricity, amounting to almost 50 per cent of expenditure under normal circumstances. Sadly, circumstances are never normal. Governments jostle to pamper their domestic aluminium industries with tax rebates, import quota, subsidies, cheap loans and environmental leniency. Most governments help out with unreasonably cheap electricity, priced at a mere fraction of what households have to pay.

In most cases the profitability of an aluminium producer depends exclusively on the largesse of its government. This keeps uncompetitive companies in business and guarantees a permanent oversupply suppressing aluminium prices over long periods. Only mishaps like embargoes, factory shutdowns or acts of hostility can give a jolt to prices as long as market-abusing practices cannot be checked. Take Alba, Bahrain’s aluminium smelter, which the government supports with subsidies to the tune of 40 per cent. This turns a chronical loss of 15 per cent per annum into a formidable profit of 25 per cent, more than any other producer on earth. A profitable company worth investing?

China accounts today for half of the world’s aluminium production and sports four of the world’s biggest producers – Chalco, Xinfa, SPIC, and the Hongqiao Group, which produces two times more aluminium than the Anglo-Australian mining behemoth Rio Tinto, the world’s number five.

China has achieved its paramount position within 15 years, subsidising its aluminium industry massively and boosting production irrespective of market demands. The US meanwhile is comforting Alcoa with import duties and tax subsidies. To buy shares in companies which are only kept in business by politicians is not advisable, no matter how profitable they seem. Because politics have the nasty habit of unexpected, sudden changes.

On the other hand, to invest in companies which would be profitable enough even without governmental largesse, like Norsk Hydro, is even less advisable, because the cheaters will make sure that the former can never compete profitably. With aluminium prices of less than $2,000 per ton almost no one can turn in a profit without governmental help.

This is why even ‘profitable’ aluminium companies trade well below their book value and boast earnings at share prices which in any other industry would be an idiot-proof ‘buy’-signal. Strangely enough, Russia’s Rusal, the world’s number two, producing 3.8 million tons per year, does not receive any governmental subsidies. Yet it is profitable and its stock has gained massively in the last year (52 per cent). It is supplied with hydro power, green and cheaply, by its sister company Eurosibenergo and trades at a P/E of lucrative 6.9 on the Hong Kong Stock Exchange.

Sadly its owner is Oleg Deripaska, who in 2006 was banned from ever entering the US because of his business contacts to Russia’s most notorious crime gangs. Luckily for him he is the holder of a Maltese passport. During the financial crisis of 2008 Deripaska, one of Russia’s most hard-nosed and wealthy oligarchs but at the time highly indebted after a series of rapid acquisitions, would have gone under without the massive emergency support by Russian financial institutions.

The oligarch and all his companies were then in 2018 sanctioned by the US for election meddling, the Crimea invasion and the Syria campaign, all of which seemed a bit far-fetched and had to be called off after some face-saving exercises when the US administration realised that taking the world’s number two out of the market would not only harm US business, but trigger a recession.

To invest in Rusal or any other of the oligarch’s wily acquired businesses needs a strong stomach. Property rights in Russia are a matter of opinion – nothing to be taken for granted. To invest, when only 25 per cent of shares are free floating would be a grave mistake, even when Godfather Deripaska’s aluminium comes with the promise of a greener world.

Andreas Weitzer is an independent journalist based in Malta. He reports on the economy, politics and finance. The purpose of his column is to broaden readers’ general financial knowledge and it should not be interpreted as presenting investment advice or advice on the buying and selling of financial products.

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