The European metals industry has warned that the energy crisis poses an “existential threat” to its future as executives fear many smelters face permanent shutdown without emergency action from the EU.
In a letter to EU leaders, Eurometaux, the nonferrous metals trade body, said the industry’s problems, which have led to “unprecedented” cuts to smelter production in the past year, will deepen unless the EU intervenes.
An aluminium smelter in Slovakia and a zinc plant in the Netherlands have halted production indefinitely with the threat of more closures to follow, some likely permanent, according to the trade body.
“We are deeply concerned that the winter ahead could deliver a decisive blow to many of our operations,” Eurometaux wrote in a letter signed by 40 chief executives.
“We appeal for EU and member state leaders to take emergency action to preserve their strategic electricity-intensive industries and prevent permanent job losses.”
The cost of energy has become far higher in Europe than in Asia and the US after Russia slashed gas supplies to the continent, which is threatening to wipe out corners of the region’s industry.
Europe has already cut about half of its production capacity for aluminium and zinc used in everything from cars, planes and packaging to galvanised steel, according to Eurometaux.
Gas prices have soared to about 12 times their average of the previous decade after Russia cut supplies to Europe. That has driven up the price of electricity by a similar amount. Electricity is used in vast quantities by smelters and other heavy industries.
In a separate letter to European Commission president Ursula von der Leyen, 12 groups that represent energy-intensive industries including cement, chemicals and steel asked the EU to take measures to limit the price of natural gas, disconnect the link between gas and electricity markets that have helped force up power prices, and adjust the bloc’s state aid framework temporarily.
“For many energy-intensive industries there is currently no business case to continue production in Europe nor visibility and certainty for investments and further developments,” the industry bodies collectively wrote.
In response, Brussels is set to propose targets for reductions to electricity demand, levies on energy companies — the proceeds of which can be redirected to consumers and businesses — and amending state aid rules to allow governments to support companies in financial straits.
The plans will be discussed at an emergency meeting of EU energy ministers on Friday as member states push Brussels to take rapid remedial action.
On Tuesday, Aluminium Dunkerque, Europe’s largest primary smelter for the metal, said it would curtail production by 22 per cent because of high electricity prices. Outokumpu, the largest producer of stainless steel in Europe, also announced that it would delay the restart of one of its ferrochrome furnaces following maintenance. Ferrochrome is a type of alloy.
Aluminium, also known as “solid electricity”, is coming under a particularly acute threat because those smelters are extremely energy intensive, cannot easily adjust production volumes and are difficult to restart once halted.
Nick Keramidas, European and regulatory affairs director of Mytilineos, a Greek industrial conglomerate that produces aluminium, said the electricity, at current market prices, needed to produce a tonne of aluminium would cost about €10,000 but it would sell for less than €2,500. His company has long-term power purchasing contracts in place, he said, but the whole industry would struggle when contracts expire.
“Anything unhedged cannot survive these electricity prices,” he added. “Right now it’s impossible to buy forward electricity at prices that will keep you afloat.”
As a result of the current market situation, Eurometaux said that more smelters will shut at the start of 2023 once their hedging for this year runs out unless the EU makes urgent, far-reaching interventions in the power market.
Ami Shivkar, principal analyst of aluminium markets at Wood Mackenzie, a consultancy, said a further 600,000 tonnes of aluminium production was at risk of temporary closure in Europe in the next few months.
“To restart a smelter you need a humongous amount of capital,” she said in a warning that temporary closures can turn into permanent ones.
The European electricity sector has pushed back against a tax on power producers, however. Kristian Ruby, chief executive of Eurelectric, which represents Europe’s electricity sector, said: “Politicians are quick to conclude ‘here is someone making a big buck, let’s tax them’ but what we are seeing is an unprecedented stress level [in the sector].”
Additional reporting by Sylvia Pfeifer
Source: Economy - ft.com
