LONDON – Europe’s primary aluminum smelters are cutting production in the face of rising energy costs.
The region’s light metal production is down 550,000 tons annually compared to last year, and slides are still accelerating.
Aluminum smelting is an energy-intensive business and even before Russia launched a “special military operation” in Ukraine, European smelters were fighting high power prices.
This has exacerbated Europe’s energy crisis and pushed forward power prices to regular highs. The price of aluminum smelters in Europe is rising all the time with little sign of any impending relief.
It is not surprising that European buyers are paying record physical premiums or that aluminum is now being imported from as far away as China.
Production sliding west.
According to the latest assessment by the International Aluminum Institute (IAI), Western European output of primary aluminum totaled 244,000 tons in April.
Which dropped 13.2% in April last year to an annual run-rate of 2.97 million tonnes, the latest low.
Annual production has now dropped to 470,000 tonnes from a peak of 3.44 million tonnes in May last year – just before electricity prices began to rise.
The biggest single loss is 228,000 tons per year in Spain’s San Cyprian smelter, whose owner-operator Alcoa was inactive until 2024, when it will be re-launched with renewable power sourcing.
Many of the other aluminum smelters in Western Europe are privately owned, meaning there are no publicly available quarterly updates, although many warned in the fourth quarter of last year that they were losing power.
Since then, annual production in the region has declined by another 305,000 tons, reflecting an increasing rate of energy-related smelter disturbances.
The problem is that European electricity prices show no signs of easing anytime soon and could actually get worse as the European Union seeks to move away from its dependence on Russian fossil fuels.
When European smelters first started lazy power in the third quarter of 2021, the expectation was that it was a seasonal event where spring cuts could be reversed due to rising temperatures and declining energy demand.
That is no longer part of the script.
… And now before
Aluminum production in Eastern Europe has also been declining since early 2022.
Production fell 2.4% to 333,000 tonnes in April 2021, with annual run-rates falling slightly to 80,000 tonnes in the first four months of the year.
The IAI’s Eastern Europe production figures include the Russian giant Rusal but also a number of smaller operators, all of which are losing output.
The Podgorica Smelter in Montenegro was completely inactive by the end of 2021, with the last carrying capacity of 63,000 tons. The plant will maintain product production using purchased ingots, possibly Chinese ingots, exporting 20,000 tonnes, which left China for the Balkans in February.
Slovakia’s Slovako Smelter reduced its 175,000-ton capacity by 20% at the end of last year and a further 20% in the first two months of this year.
The biggest drop in regional production from a year-to-date decline could come from Romanian producer Alro, who announced in December that it would cut three of the five operating pipelines with a production capacity of 132,500 tonnes.
There is no evidence yet that Rusal’s primary aluminum production was affected by the loss of alumina feed from its Ukrainian refinery, which was shut down shortly after the Russian invasion, or that Australian activities were halted after the country’s government banned exports.
Or at least not in April. The IAI’s monthly updates are essentially a rear-view mirror of a fast-changing European aluminum dynamic.
Russian aluminum is not approved by the United States or the European Union.
Both have already learned in a hard way that Russell is a strategic supplier of aluminum to Europe. In 2018, U.S. sanctions on the company and its owner, Oleg Deripaskar, severely disrupted the aluminum supply-chain and pricing.
The sanctions were lifted in 2019 when Deripaska relinquished operating control of the company, at which time Rusal provided diplomatic cover against the sanctions.
European consumers can only be grateful, even those who have decided to self-approve anyway.
They are already paying a record $ 615 per tonne over the LME cash price for physical duty-payable metals on the spot market. Without the continued flow of rusal metals, they would still pay a high price.
Historical premiums for physical aluminum in Europe are drawing in metals from Asia, both from LME warehouses in the region and, more unusually, from China.
Early aluminum exports to China are subject to a 15% tariff, which makes it even more remarkable that it shipped significant amounts of metal to Europe in the first quarter of this year.
China’s winter power crisis is over, and the country’s smelters are boosting aluminum production. According to the IAI, national production increased by 3.4 million tons annually in the first four months of the year.
With domestic demand stalling due to Beijing’s zero-cavity lockdown policy, China has plenty of metals to export.
Europe, by contrast, is experiencing increasing supply shortages as smelters in the region lose more power.
This dynamic change will not happen until the region’s energy crisis has subsided, which shows no signs of abating soon.
Opinion published here is by the author, a Reuters columnist.
(Edited by Carsten Donovan)