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Credendo: European aluminum sector in a critical situation

The price of European aluminum has increased by about 15% since the start of 2022, exceeding its historic high of October 2021—an increase of more than 60% compared to January 2021, according to a new analysis by European credit insurance group Credendo.

This is not good news for aluminum producers, Credendo said. It is strong demand and, above all, the drop in production in Europe and China that is pushing prices up, while aluminum inventories are historically low. Production mainly dropped because energy prices have risen sharply in 2021.

Additionally, in China, the desire to reduce air pollution for the Winter Olympics, as well as to reduce carbon dioxide emissions—5% of which are coming from the aluminum industry—is limiting the growth of aluminum production for 2022. China is importing aluminum on a massive scale to compensate for the domestic shortage.


As energy represents a high proportion—more than a third—of production costs, the sharp increase in the price of gas has a huge impact on companies’ profitability, especially in Europe where the price of natural gas has increased by almost 550% from December 2020 to December 2021, according to the World Bank.

As a result, European aluminum producers find themselves faced with a difficult choice, Credendo observes. Either they close their smelters or they reduce their production, even if it means producing at a loss. This last option is the choice made by the largest smelter in Europe at the end of December 2021.

Aluminium Dunkerque Industries France announced that it will lower its production of primary aluminum. In Galicia (Spain), Alcoa has decided to completely close its primary aluminum smelter—the second largest in Europe—for two years (until the end of 2023). However, it will continue to re-smelt aluminum for its clients in the pharmaceutical and food industry.

In Romania, it was announced at the end of December that the production of the Alro smelter would be cut by 60%, blaming unsustainable energy prices. In Slovakia, production at the Slovalco smelter (owned by Norsk Hydro) will be reduced to 60% of its capacity (down from 80%).

All these cuts in the production of primary aluminum will therefore have an impact on downstream mills because they need primary aluminum. Mills with an integrated production of primary aluminum should suffer less from this drop in European production, but will still be significantly impacted by electricity costs.

Additional risk linked to Russia-Ukraine tensions. The current tensions between Russia and Ukraine are already taken into account in the price of European gas. However, in the event of Russian aggression against Ukraine, Europe could lose critical energy supplies. In addition, US and European sanctions would be expected against Russia, which is a commodity powerhouse and the second-largest aluminum producer in the world after China. As in 2018, when RUSAL was hit by sanctions, new sanctions would seriously disrupt the European aluminum sector. While the aluminum value chain (bauxite and alumina) has already been strongly impacted by electricity shortages, new barriers to trade could be a fatal blow to the European industry.

To conclude, the demand for aluminum is expected to increase sharply in the future, considering that it is an essential metal for the transition to a greener economy. Non-European foundries are therefore benefiting from this surge in aluminum prices. However, the overall growth in production volume is limited or even at risk, due to energy prices, but also due to the desire to reduce carbon dioxide emissions. While we need aluminum to lower these emissions in the future, we are currently slowing down the production of aluminum to avoid emissions. The paradox of our times...

—Matthieu Depreter, Credendo analyst


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