Magnesium Shortages in China Could Create Added Headaches for Global Automakers

While the global semiconductor shortage continues to decimate the auto manufacturing industry, markets have begun to divert their attention to magnesium, which is on the brink of a supply crisis that threatens to further weaken the world’s car manufacturers.

Magnesium, which is put in aluminum to create a hardened aluminum alloy, is used to make various vehicle parts such as rims, engine blocks, transmissions, body panels, and frames. However, according to a Bank of America note, low magnesium supplies could spark an aluminum shortage, which could inflict further damage on the already-struggling auto industry.

China’s concurrent coal and energy shortages have sparked widespread power outages across the country’s industrial regions, which is incidentally where energy-intensive smelters that produce magnesium are located. To make matters worse, China also holds a monopoly on the world’s magnesium production, and since there aren’t any substitutes for the metal in aluminum sheet production, the supply could essentially become frozen.

To put such potential implications into focus, nearly 85% of the entire global magnesium supply is derived from China, and more specifically, in the town of Yulin, which is located in the Shaanxi province. The current global energy crisis has forced the Chinese government to cut back magnesium smelters’ output by 70% in an effort to preserve energy supplies ahead of the winter season.

The money question is whether or not the Chinese government will greenlight the resumption of magnesium smelters before the end of the year. If not, then the global automotive industry will face a critical inflection point, one that is fuelled by a double crisis of semiconductor and aluminum shortages.

Information for this briefing was found via the BofA. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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