← Critical Product/Equipment/Process: Metals, Mining & Materials (all topics)
LME exposure & smelter economics
What it is
Aluminium, copper and zinc are priced on the London Metal Exchange, so a primary producer is a price-taker on revenue. Cost of production per tonne is driven by captive coal and power, bauxite and alumina, and caustic soda
Smelters must run continuously - a shutdown solidifies the pot lining and can be irreversible
Impact on industries
- Captive coal, power and bauxite integration is the entire competitive game, since revenue is set by LME and only cost is controllable
- Smelter irreversibility removes the option to idle capacity in a downturn, so a producer must run and sell at whatever LME offers
- Energy is the dominant cost and coal-based power carries rising carbon exposure as CBAM-type measures spread to metals
- Energy transition is a genuine driver - grids, EVs and renewables consume far more copper and aluminium than what they replace, though alumina and caustic link costs to the chlor-alkali cycle