European industry eyes China as aluminium factories shut

By Bartosz Sieniawski, Bogdan Neagu, Krassen Nikolov, Michal Hudec, Paul Messad and Pekka Vanttinen | EURACTIV, EURACTIV Bulgaria, EURACTIV France, EURACTIV Poland and EURACTIV Slovakia

08-09-2022

Many European industries found themselves in full-crisis mode after the Russian invasion of Ukraine drove energy prices to previously unseen heights. However, the aluminium industry and other smelting industries are extremely energy-intensive and highly dependent on electricity prices, which is a problem when electricity and gas supplies are reduced. [Shuttestock/FOTOGRIN]

Languages: Slovak

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As skyrocketing energy prices take a toll on European aluminium producers resulting in factors shuttering, many players will turn to China to meet the supply crunch of the strategic metals industry, players warn.

Many European industries found themselves in full-crisis mode after the Russian invasion of Ukraine drove energy prices to previously unseen heights. However, the aluminium industry and other smelting industries are extremely energy-intensive and highly dependent on electricity prices, which is a problem when electricity and gas supplies are reduced.

As Cyrille Mounier, general delegate of the Aluminium France federation, told EURACTIV France, "a primary aluminium plant is a continuous fire; it cannot stop for more than two hours," otherwise the whole production line would be destroyed.

Shutting down a factory is a painful decision in the sector because restarting can cost millions of euros. However, this is exactly what leading Slovak aluminium producer Slovalco, owned by Norwegian Norsk-Hydro, is about to do at the end of September. Whether it will ever restart, nobody knows.

On Sunday, Aldel – the only primary aluminium producer in the Netherlands- made the same decision. The biggest aluminium producer in eastern Europe – Romanian Alro Slatina – also the country's largest electricity consumer, announced the closure of three out of five production lines in December 2021. Earlier this summer, Dutch zinc producer Nyrstar also announced a shutdown.

Traders expect more closures as autumn approaches.

Since October 2021, when energy prices started to rise, Europe has had to close or halt half of its primary aluminium production, which equals 1.1 million tonnes.

Turning to China for help?

Aluminium is a material of strategic importance for the European economy as it is used in critical sectors such as medical and food packaging, cars, and technologies key to greening the electricity grid.

Closures of aluminium producers and other smelters will significantly affect the European economy as other strategic sectors such as steel, defence or automotive try to rely less on imports.

Despite tough talk and sanctions, the European Union ramped up unwrought aluminium from Russia in March-June by 13% compared to last year, Reuters reported on Wednesday.

However, many in the European industry are also likely to turn to the world's largest aluminium producer, China.

Russia's Rusal is the world's largest aluminium producer outside China and accounts for about 6% of estimated world production.

Slovalco factory Director Milan Veselý warned that this is exactly where Europe is headed. "Halting production means Europe will be forced to import aluminium from countries such as China," he said, pointing out that while the Slovak factory was one the most ecological in the world, aluminium from China is much "dirtier".

The value of EU imports of aluminium from China have almost doubled since last year, while their volume increased on average by 20.07% in February-June compared to the same period last year.

The mining of raw materials is currently dominated by only a handful of players, with China, in particular, holding a monopoly in several sectors. This caused disruptions last year when China scaled back the production of magnesium – a key alloy essential for the aluminium industry – greatly affecting Europe, which then imported 93% of its magnesium from China.

An EU executive spokesperson told EURACTIV Slovakia that "the Commission is fully aware of the extremely difficult situation the energy-intensive industries are facing", adding that "imports are likely to replace the intra-EU supply in a short term."

However, aluminium is a crucial metal for the future due to its use in key technologies and applications of the future (renewables, mobility, etc.), and a long-term replacement of domestic production with imports is not desirable as it would potentially create another strategic dependency for the EU that could undermine EU's green transition," they added.

Besides aluminium, other industries may follow suit. Cement producers weren't previously worried about the competition from China as cement has a lower unit value compared to aluminium or steel. "However, if we take a look on the electricity prices in the European market, anything is possible," President of the Slovak Association of Cement Producers Rudolf Mackovič said for EURACTIV Slovakia.

Who is to blame?

Slovalco blames the Slovak government for not providing enough support. The same goes for the Aldel factory in the Netherlands.

In France, industry producers take advantage of regulated access to cheaper nuclear energy – the so-called ARENH scheme – which provides them with a certain amount of electricity at a fixed price of €42 per megawatt-hour (MWh). However, even here, the sector faces a bleak future.

Although Mounier assures that no stoppages are planned for a moment, he adds that "it is possible everything will be at a standstill in October."

To help the struggling industry and contain the effects of current prices for a while, the French government has recently raised the ceiling of the ARENH scheme.

At the same time, around Europe, producers passed the rising prices onto the customers. For example, Romanian Alro Slatina revenues increased in the first six months of 2022 despite closing most of the production lines. The same goes for Slovalco, which will make additional profit by selling the electricity it has already bought for next year.

European smelters, but also other energy-intensive industries now turn to EU-wide solutions. Mounier recommends "quickly finding a measure on the price of gas and anticipating 2023 to avoid stopping the production line and the price of metal soaring."

High hopes are in for the energy ministers council meeting scheduled for Friday (9 September). "It would be surprising if they did not think of capping gas prices," he says.

"We have to immediately find an EU-wide solution or we risk a industry collapse across Europe," Mackovič warned.

Languages: Slovak

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