Europe’s Energy Crunch Threatens Aluminum Production

Oslo based aluminum company Norsk Hydro ASA issued a warning over the critical threat that Europe’s energy crisis poses to aluminum supply. The company said the series of production cutback seen so far could be doubled over the winter months. The skyrocketing energy prices have already slashed the production of around 900,000 tons of aluminum, which is one of the most energy intensive metals to make, in Europe and North America over the past two years.

As more than a third of smelters announcing losses, an additional 1 million tons of capacity is in danger over the coming months.

Hydro’s production in Norway has so far been unscathed because the company supplies energy from hydroelectric plants, but its Slovakia production is cut sharply because of surging power prices, which has made its Slovalco plant unprofitable.

While the strain on supply caused a spike in aluminum prices on the London Metal Exchange (LME) earlier this year, they’ve since fallen sharply as demand worries mount, adding to the strain on smelting margins.

The Norwegian company said the European aluminum industry, which has become smaller and smaller over the years, is facing a huge danger and risk of further industry closures.

As supply risks are growing, Norsk also signaled that the demand outlook is deteriorating fast. The company boosted shareholder returns sharply after a strong second quarter, but it warned that a five-quarter run of record results could be drawing to a close.

Norsk Hydro has increased its long-term hedging to cover a quarter of its portfolio, and stated that protecting against a further drop is prudent as the risks to demand grow. Aluminum has declined more than 12% this year on the LME.

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