Aluminum Production Slows Amidst Energy Crisis

A number of Europe’s aluminum and zinc factories are reducing their output or even shutting down as high energy prices squeeze margins and make running them unprofitable. Nyrstar’s zinc facility in the Netherlands will end production this year, while Norsk Hydro’s aluminum smelter in Slovakia has said it will close down by the end of September, affecting some 300 jobs.

Aluminum is produced by smelting ore, which is a highly energy-intensive process. As our chart shows, the base metal’s smelting capacity in western and central Europe has already sunk this year, ever since the energy price hikes triggered by the war in Ukraine, with lows of a -13.2 percent in April 2022 versus one year earlier. This trend is expected to get worse as more factories go offline.

With stockpiles of aluminum, zinc, lead, tin and nickel hitting their lowest levels on record, according to Bloomberg, Europe can expect prices to rise and dependency on imports to grow. Zinc is needed for the production of steel, and so a price increase would hurt the auto, construction and infrastructure sectors too. Fertilizers are also being hit by energy prices, and if they too become much more expensive, it could have a knock-on effect of farmers buying less and producing smaller yields.

While factory closures will help towards Europe hitting its target of reducing gas usage by 15 percent between August and March in case Russia fully cuts off the bloc from their supplies, Eurometaux’s Director General Guy Thiran tells Bloomberg that continued cuts will bring their own set of problems. “Any further reduction of European metals production risks being permanent, threatening job losses and knock-on impacts on a complex web of essential and strategic EU value chains”, he said.

Energy costs are being felt in other regions of the world too, with droughts in China reducing hydropower production and seeing aluminum output fall, as the U.S. has seen steel mills halt operations over its own expensive costs, according to Mining Weekly.