Amidst Electricity Shortage, European Smelters Pose a New Threat to Aluminium

Germany: This week, Aluminium prices are skyrocketing in Europe owing to a massive shortage in the domestic market. According to market participants, Europe's power crisis has exacerbated the region's industrial metals sector, with two more Smelters announcing their planned shutdowns this week. In early September, Nyrstar will begin maintenance at its Budel Zinc Smelter in the Netherlands and continue until further notice, while Norsk Hydro in Slovakia will entirely shut down its Slovalco Aluminium Smelter by the end of September. More outages are likely to ensue in the upcoming weeks. Smelting raw materials into refined metals require much energy, and Europe's power crisis shows no signs of abating and could exacerbate before winter.

Although the hot summer weather is causing problems for domestic Smelters, a drought in Sichuan has caused power outages, forcing metal processing plants to reduce output. According to manufacturers, extracting sufficient quantities of minerals from the ground to meet green needs is already difficult. Obtaining enough electricity to process refined metal quickly becomes the new major issue.

As per market players, Nyrstar only cited "various external factors" in its decision to close Budel, and electricity prices came out on top. The Budel Smelter is already operating at less capacity due to skyrocketing electricity costs, as are Nyrstar's two remaining Smelters in France and Belgium. Slovalco is also the fourth European Smelter to close in the last year. Additionally, Alcoa has suspended manufacturing operations at its San Ciprian Smelter in Spain for two years, and primary Smelter s in the Netherlands and Montenegro have also been closed. Others, like Alro in Romania, have partially idled capacity and are adjusting run rates to avoid peak usage periods.

As per our sources, annual Aluminium production in Western Europe has fallen below 3 million tonnes, and there is a growing risk that temporary production curtailment will become permanent if the energy crisis does not ease. The impact of electricity on the region's processing capacity portends a bleak future for the European energy transition plan, which calls for more metal and its strategic autonomy drive, which implies that more metal should be mined and refined in Europe.

According to ChemAnalyst, European buyers pay more than USD 495 per tonne for the metal than the London Metal Exchange. Before last year, such a premium was unheard of in Europe. More such futures-spot price divergences are expected in the future as Smelter issues in the metals industry appear to persist. Till Q1 2023, Aluminium prices are forecasted to soar. During the first quarter of 2023, the downstream demand will likely decline as the market will have sufficient inventories of Aluminium.