Some Aluminium Capacity in Europe May Be Gone Forever amid Ongoing Energy Crisis

In the aluminium industry, closing a smelter is a painful decision. Because once the power goes out and the production facility cools to room temperature, it will take months and tens of millions of dollars to restore.

However, with the cut-off of Gazprom supply and the intensifying energy crisis, the European aluminium industry seems to be facing an unprecedented "crisis of survival".

Norsk Hydro, one of the world's largest aluminium companies, is seeing its large plant in Slovakia face a potential shutdown. Not only that, but aluminium production in Europe has fallen to its lowest level since the 1970s.

In fact, the reason can be seen in aluminium's nickname - condensed electricity. The metal is used in almost everything from car frames and soda cans to ballistic missiles, but its production requires enormous amounts of energy. Data show that it takes about 15 megawatt-hours of electricity to produce one tonne of aluminium, enough to power five German households for a year.

Shutting down and restarting is expensive

Based on the recent market prices, the Slovakian smelter's annual electricity bill will be around 2 billion euros, said Milan Vesely, chief executive of Hydro. The company decided to close the smelter in Slovakia due to soaring energy prices and a lack of emissions offsets for smelters in some parts of the European Union.

Restarting the plant could take up to a year, Vesely said in an interview at the plant this week, and could only be achieved through a combination of lower electricity prices, a sharp rise in aluminium prices and additional government support.

“If we don't want to disrupt aluminium production in Europe, we have to act. If Europe considers aluminium to be a strategic metal, then aluminium smelters should have (preferential) electricity prices. " he added.

“This is a real survival crisis," said Paul Voss, director general of European Aluminium, an industry group.

Mark Hansen, chief executive of metals trading firm Concord Resources Ltd., said, "History has shown that once aluminium smelting capacity is gone, it's not coming back."

Uday Patel, senior research manager at research firm Wood Mackenzie, said: “Whenever economic growth slows and smelters’ profit margins come under pressure, we see European smelters shut down quite a bit of capacity. When the situation improves, some smelters never resumes the production. "

Patel said that he expects about 25% of that capacity could be permanently cut.

Wood Mackenzie estimates that European aluminium production has already fallen by about 1 million mt a year, with an additional 500,000 mt of capacity "highly likely" to be shut down.