Europe’s Energy Crisis Causes Aluminum Smelter to Close Doors
- March 10, 2023
- Posted by: Quatro Strategies
- Category: Manufacturing
German aluminum smelter Speira is the latest victim of Europe’s energy crisis as the company was forced to shut down its Rheinwork plant in Germany. Soaring power prices have hammered Europe’s industrial economy and caused supply shortages of critical raw materials, although prices dropped sharply from last year’s peaks. Speira announced a 50% cut in aluminum production in September as soaring power and gas prices plunged Europe’s energy-intensive metals industry. Despite some smelters ramping production back up in recent weeks, Speira shutdown shows there are still obstacles governments face as they scramble to prevent deindustrialization, while looking to shore up local supplies of critical raw materials as global supply chains become more fragile.
The European Commission is aiming to produce at least 40% of its strategic raw materials needs by 2030, according to a draft legislation due to be proposed later this month.
While the legislation has not detailed the commodities it will target, it will likely include 30 strategically important raw materials the EU identified in 2020, many of which play a critical role in renewable energy, electric vehicles, aerospace and defense. Bauxite, the mined ore that aluminum is derived from, was included in the list, although aluminum itself wasn’t.
The global aluminum market has been plagued by oversupply for decades, but events of the past few years, including the Sino-American trade war, the invasion of Ukraine and Europe’s energy crisis, have highlighted the fragility of global supply chains, including the West’s concerns of over-reliance on imported supplies from major producers such as China and Russia.
Aluminum is one of the most energy intensive metals to produce, and European production capacity has fallen by more than half since the start of the energy crisis. Many plants have dialed back production, but others including Norsk Hydro ASA’s Slovalco plant in Slovakia and Alcoa Corp.’s San Ciprian plant in Spain have stopped producing entirely.
Like those plants, the Speira smelter will be placed on long-term care and maintenance, and could reopen eventually if the economics improve. But restarting a smelter is slow and costly, and some plants in the region that closed in prior downturns have never reopened.
In January, the European metals industry’s main lobbying group Eurometaux warned that further long-term financial support is needed to help the region keep control of raw materials that are critical to the green-energy transition. In addition to the ongoing threat posed by high energy prices, Europe is at risk of losing out to the US in attracting investment, due to the billions of dollars in subsidies available through Biden’s Inflation Reduction Act, the metals industry association said.
Speira will now focus solely on recycling and processing aluminum into value-added products, it said. While the decision to close the smelter will affect about 300 employees, the company will deliver all contracted sales to its customers, replacing the curtailed production with external metal supplies.
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