Europe’s worsening energy crisis is leaving the aluminum industry increasingly vulnerable.
approached long-term weekly demand zones. These are price levels that typically trigger a strong upswing. Before the most recent short-term declines, prices bounced off these levels, rising back into zones of strong downward movement . Should prices continue to break downward, it could indicate a downtrend continuation. Moreover, the longer prices continue to trade within this range, the longer volatility and current uncertainty will persist.
Europe’s energy crisis continues to worsen, leaving its aluminum industry increasingly vulnerable as high energy prices continue to shutter production. Aluminum Dunkerque Industries France, Europe’s largest aluminum smelter, recently announced it would cut its capacity by 22% by . The smelter, which produced 290,000 tons of aluminum last year, sources most of its power supplies through nuclear energy at fixed prices. However, the remaining share leaves the facility exposed to market prices.plans to halve production at its Neuss plant indefinitely. The latest cuts come in addition to many others dating back to the beginning of 2021.
Currently, all smelter shutdowns and curtailments directly correlate to energy costs. And though Europe’s entire metal sector will see an impact from the ongoing crisis, the aluminum industry is especially exposed. Indeed, aluminum production requires roughly 40% more energy than copper. And when producers face sharp price increases, production quickly becomes unprofitable for any raw material not attached to fixed-price contracts.
European production constraints remain a bullish factor for prices and premiums, as well as a risk for companies sourcing products and materials from Europe. However, many other factors outweigh the effect of those constraints. For instance, premiums continue to slide from their peaks. Meanwhile, by the end of the first week of September, aluminum prices fell to their lowest level since March of 2021. On top of that, LME inventories reached their highest levels since late July.
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