Credendo: European aluminum sector in a important scenario

Credendo: European aluminum sector in a important scenario


The worth of European aluminum has elevated by about 15% for the reason that begin of 2022, exceeding its historic excessive of October 2021—a rise of greater than 60% in comparison with January 2021, in line with a brand new evaluation by European credit score insurance coverage group Credendo.

This isn’t excellent news for aluminum producers, Credendo stated. It’s sturdy demand and, above all, the drop in manufacturing in Europe and China that’s pushing costs up, whereas aluminum inventories are traditionally low. Manufacturing primarily dropped as a result of vitality costs have risen sharply in 2021.

Moreover, in China, the will to scale back air air pollution for the Winter Olympics, in addition to to scale back carbon dioxide emissions—5% of that are coming from the aluminum business—is limiting the expansion of aluminum manufacturing for 2022. China is importing aluminum on a large scale to compensate for the home scarcity.

As vitality represents a excessive proportion—greater than a 3rd—of manufacturing prices, the sharp enhance within the value of fuel has a huge effect on firms’ profitability, particularly in Europe the place the worth of pure fuel has elevated by virtually 550% from December 2020 to December 2021, in line with the World Financial institution.

In consequence, European aluminum producers discover themselves confronted with a troublesome alternative, Credendo observes. Both they shut their smelters or they cut back their manufacturing, even when it means producing at a loss. This final choice is the selection made by the most important smelter in Europe on the finish of December 2021.

Aluminium Dunkerque Industries France introduced that it’s going to decrease its manufacturing of major aluminum. In Galicia (Spain), Alcoa has determined to utterly shut its major aluminum smelter—the second largest in Europe—for 2 years (till the top of 2023). Nonetheless, it should proceed to re-smelt aluminum for its shoppers within the pharmaceutical and meals business.

In Romania, it was introduced on the finish of December that the manufacturing of the Alro smelter can be reduce by 60%, blaming unsustainable vitality costs. In Slovakia, manufacturing on the Slovalco smelter (owned by Norsk Hydro) can be decreased to 60% of its capability (down from 80%).

All these cuts within the manufacturing of major aluminum will subsequently have an effect on downstream mills as a result of they want major aluminum. Mills with an built-in manufacturing of major aluminum ought to endure much less from this drop in European manufacturing, however will nonetheless be considerably impacted by electrical energy prices.

Further danger linked to Russia-Ukraine tensions. The present tensions between Russia and Ukraine are already taken under consideration within the value of European fuel. Nonetheless, within the occasion of Russian aggression in opposition to Ukraine, Europe might lose important vitality provides. As well as, US and European sanctions can be anticipated in opposition to Russia, which is a commodity powerhouse and the second-largest aluminum producer on the earth after China. As in 2018, when RUSAL was hit by sanctions, new sanctions would significantly disrupt the European aluminum sector. Whereas the aluminum worth chain (bauxite and alumina) has already been strongly impacted by electrical energy shortages, new obstacles to commerce could possibly be a deadly blow to the European business.

To conclude, the demand for aluminum is predicted to extend sharply sooner or later, contemplating that it’s a necessary metallic for the transition to a greener financial system. Non-European foundries are subsequently benefiting from this surge in aluminum costs. Nonetheless, the general development in manufacturing quantity is proscribed and even in danger, as a result of vitality costs, but additionally as a result of want to scale back carbon dioxide emissions. Whereas we’d like aluminum to decrease these emissions sooner or later, we’re presently slowing down the manufacturing of aluminum to keep away from emissions. The paradox of our occasions…

—Matthieu Depreter, Credendo analyst


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September 2022