Aluminium Production Cuts in Europe Could Potentially Expand before Winter amid Sky-Rocketing Electricity Prices

SHANGHAI, Sep 8 （SMM） - Affected by the conflict between Russia and Ukraine, the production capacity of aluminium smelters in Europe has kept falling this year. This week, with the indefinite suspension of the "North Stream No. 1" gas pipeline in Russia, the price of electricity in Europe has risen sharply. It is reported that the largest aluminium smelter in Europe will step up output cuts next week. 

It was learned from industry insiders that the current reduction in aluminium production capacity in Europe has exceeded 1 million mt, and it is expected that there will be further reductions before winter. However, due to the small size of aluminium production capacity in Europe, its production reduction has limited impact on the total supply. Hence, the output cuts will only give temporary boost to aluminium prices. A source from a listed aluminium company said that its ex-factory aluminium price has not changed significantly.

Since a considerable part of Europe's electricity supply comes from natural gas power generation, Russia's suspension of gas supply has a huge impact on Europe's electricity supply.

French Dunkirk aluminium smelter announced to cut its production by over 20%.

In addition, Alcoa's aluminium smelter in Norway will cut output by a third, and Norway's Hydro also said it plans to close its aluminium smelter in Slovakia at the end of September.

The highest electricity price in the French spot market currently stands at 626 euros/MWh, which is nearly three times higher than the highest electricity price of 257 euros/MWh on February 1, said Wang Yanchen, general manager of SMM’s London office. The entire European aluminium production capacity is about 4.8 million mt, and the production capacity that has been shut down has exceeded 1 million mt. It is expected that there will be further production reductions before winter. 

Wang Yanchen believes that European aluminium smelter may further reduce production before winter as the price of electricity is too high. 

At present, the power supply in Iceland and Norway in Europe is less affected. Most aluminium smelters in other European countries have reduced production.