The gas price explosion is pushing energy-intensive heavy industry to its limits. Within two days, two factories, an aluminum smelter in Slovakia and a zinc smelter in the Netherlands, announced that they would temporarily shut down their furnaces.
The European heavy industry is capitulating in the face of the gas price explosion. Just one day after a zinc smelter in the Netherlands announced a compulsory shutdown, an aluminum smelter in Slovakia announced a production stop. The plant, which is majority-owned by Norsk Hydro, plans to put work on hold until September. This is reported by the "Financial Times" (FT).
Slovalco has an annual aluminum production capacity of 175,000 tons. Smelting ore to produce metal is one of the most energy-intensive industrial processes. Because of the Ukraine conflict and curtailed supplies from Russia, gas now costs 13 times as much on average as it has in the past ten years. "The closure of the plant reflects the increasing burden on European smelters in the face of higher energy costs," commented analysts from JP Morgan on the enforced break.
The FT quotes Norsk Hydro's head of primary production, Ola Sæter, as saying that Slovalco is a "well run and modern" plant. However, Slovakia has failed to offset CO2 emissions from energy-intensive industries under the EU scheme, meaning the plant would suffer "significant financial losses" should operations continue beyond this year.
Just one day earlier, a zinc smelter in the Netherlands had announced a production stop due to rising energy costs. The Budel smelter, which belongs to the Belgian company Nyrstar, is one of the largest smelters in Europe. From September 1, it is to be put into a maintenance and repair state "until further notice", as the Bloomberg finance agency writes, citing the company. Zinc prices shot up over 7 percent after the news.
The leading zinc producer Glencore had already warned of the consequences of the energy crisis for Europe at the beginning of August. The supply of base metals is coming under increasing pressure from the gas crisis. According to a survey by the Aluminum Germany association, nine out of ten aluminum smelters cannot switch to an energy source other than gas. Even if the gas supply were reduced by up to 30 percent, production would come to a standstill in half of the companies.
The smelters are hardly making any profits, many have reduced their production and are therefore working below their capacity. The stocks of zinc, aluminum and copper have therefore shrunk - even if demand has fallen due to fears of a recession.
There are also internal problems. Norsk Hydro has to shut down its plant in Sundal, Norway - Europe's largest aluminum smelter - due to a strike. The Sundal plant will produce 20 percent less for four weeks. Help from China in the tense supply lawsuit is not to be expected. The authorities there shut down the huts because of a heat wave in favor of the energy supply for private households.
