Author: Kang Kai
The intensifying energy crisis in Europe has put the regional metals industry under constant pressure.
On the 6th local time, France's Dunkirk Aluminium, Europe's largest aluminium smelter, announced a 22% reduction in production, becoming the latest example of a reduction in production by the European aluminium industry.
Earlier, Alcoa said it would reduce the capacity of its aluminum smelter in Norway by a third.
Norwegian aluminum company Hydro is preparing to close a smelter in Slovakia at the end of this month.
Other metal smelters are facing a similar situation.
Nyrstar, one of the world's largest zinc smelters, recently said it would shut down its large zinc plant Budel in the Netherlands.
Finland's Outokumpu, one of Europe's largest stainless producers, also said on the 6th that it would delay restarting a ferrochromium smelter because of "unusually high" electricity prices.
Zhang Weixin, senior analyst of non-ferrous metals at CITIC Construction Investment Futures, said in an interview with a reporter from China Business News that the shutdown and reduction of production in the European metal industry will prompt downstream manufacturing companies to look for metal raw materials around the world. This is the impact of European energy shortage on global metal prices. Affect the realization path.
Insufficient supply of metal production capacity in Europe and spillover of demand may form support for global metal prices in the future.
"But it should also be noted that under the bear market tone, European manufacturing demand has been frustrated, and this support may be difficult to drive metal prices to rise sharply, and ultimately metal demand in Europe will also be affected by the energy crisis." He said.
Profits fall below 'break-even point'
European aluminium production has now fallen to its lowest level since 1973, according to the International Aluminium Institute.
Zinc inventories on the London Metal Exchange (LME) stood at 52,500 tonnes as of early September, down about 71% from 183,000 tonnes a year earlier.
Eurometaux, the European non-ferrous metals industry association, said that Europe has now cut about half of its aluminum and zinc production capacity.
Shi Cheng, a precious metals and non-ferrous metal researcher at Huatai Futures, said in an interview with a reporter from China Business News that most of the metal industry is a high-energy-consuming company.
In the context of rising natural gas and electricity prices in Europe, the energy costs of aluminum, zinc and iron smelters have soared.
The production cost of some enterprises has even exceeded the selling price of the product, which has caused the profit of the enterprise to fall below the "break-even point".
Aluminum is also known as "condensed electricity".
According to data from industry bodies such as the French Aluminum Association, it takes about 13.5 to 15 MWh of electricity to produce 1 ton of aluminum, which is enough to power five German households for a year, and about 3.8 MWh of electricity to produce 1 ton of zinc. electricity.
During the production of aluminium, the break-even point for electricity prices is about 250 euros per megawatt-hour, but French electricity futures are trading at Above 300 EUR/MWh.
He also said that although the company can buy most of the electricity at a fixed price agreed in advance, the rest of the electricity purchases will be greatly affected by the market.
Foreign media estimates that in Germany, the current cost of producing 1 ton of aluminum requires about 4,193 euros, and the cost of electricity in August exceeded 10,000 euros.
Aluminium fell to its lowest level in 17 months so far at $2,236.50 a tonne, LME data showed.
Aluminium prices have fallen 20% so far this year.
Zinc producer Glencore has warned that the energy crisis in Europe poses a major threat to supply, with smelters in the region barely making a profit.
According to industry media Mining, citing people familiar with the matter, the reason for Nyrstar’s production cuts is that the cost of electricity has risen sharply, while labor, freight and other costs have also increased.
Shi Cheng reminded that the biggest crisis in the current European metal industry lies in whether factories can be restarted after production cuts.
Since it will take a long time to restart factories, it will also require huge amounts of money.
This means that temporary shutdowns may also become permanent shutdowns, and the impact of production cuts in the European metals industry will last for a long time.
Mark Hansen, chief executive of metals trading company Concord Resources, said: "History has shown that once aluminium smelters leave, they will not come back." Hydro's chief executive Milan Vesely said frankly that restarting The smelter can take up to a year.
Europe could also be at risk of a further 600,000 tonnes of aluminium capacity cuts in the coming months, according to estimates by consultancy Wood Mackenzie.
Industry association warns of 'existential threat'
"We are deeply concerned that the coming winter could be devastating for many of our businesses." In a letter signed by 40 chief executives, Eurometaux told the European Commission that Europe's grid infrastructure, electric Cars, solar panels, wind turbines and hydrogen electrolyzers all require large quantities of base and battery metals.
Zhang Weixin analyzed that Russia was a major supplier of metals in Europe before. Due to the disturbance of the situation in Ukraine, Russia's export of goods to Europe is currently unstable.
In this context, if the production reduction wave of the European metal industry spreads, the upstream raw material supply of the automobile and aircraft industries in Germany and France will become more and more dependent on imports.
"In the future, if metal demand remains resilient, there is a high probability that the shortage of metal production capacity in Europe will spill over to other regions. This is also the path for European energy to have an impact on global metal prices," he said.
EU countries have bought nearly half of their aluminium in recent years from suppliers outside the bloc, according to the European Aluminium Association.
However, Zhang Weixin also reminded that under the background of weak global demand as global central banks such as the Federal Reserve entered the interest rate hike cycle, the manufacturing industry in Europe and other regions showed weakness, which may also drag down the demand for the metal industry.
Data from S&P Global showed that the initial reading of the euro zone's manufacturing purchasing managers' index (PMI) was 49.7 in August, a 26-month low.
Eurometaux believes that the European Commission needs to intervene in order to avoid further problems in the non-ferrous metals industry.
For example, adjusting taxes and surcharges for energy companies, setting up an EU emergency relief fund for energy-intensive industries, etc.
In Shicheng's view, in the short term, if metal companies want to deal with the problem of high energy costs, on the one hand, they can try to sign long-term power supply orders to stabilize electricity price fluctuations.
On the other hand, electricity prices can also be hedged using electricity futures varieties.
"However, this is only a way to deal with rising electricity prices. If the supply of natural gas in Europe is tight in the future, it will be relatively difficult to handle the situation. If the situation in Ukraine does not improve significantly, any so-called response measures will be difficult to long-term. It works," he said.
In Zhang Weixin's view, from the perspective of price and cost, European metal smelting and processing enterprises should actively carry out electricity price locking operations.
For downstream European manufacturing companies, they should actively sign orders with companies in major aluminum and zinc exporting countries in the world to avoid the negative impact of non-ferrous metal fluctuations on their costs.