European Aluminum Smelting Industry at Risk, Says Citicorp

The closure of Aluminium Delfzijl (Aldel) – the last remaining smelter in the Netherlands – last year is not going to be the last, according to Citicorp’s David Wilson, as quoted in Reuters.

The smelter, with an annual capacity of 110,000 metric tons, announced it was going into bankruptcy after the owners failed to negotiate a new low-cost energy deal. “There’s no reason to produce aluminium in Europe,” and “production in Europe will fall to 2 million tons this year, the lowest since 1971,” Wilson predicted, with smelters in Spain and Germany under the greatest threat.

The future of smelters in Europe has been in doubt for the last few years, with Fusina in Italy finally being permanently shut last year after being temporarily shuttered since 2010 and the UK’s Anglesey and Lynemouth smelters closed in the years since the financial crisis.

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France’s 400,000+ tons of capacity is better placed due to the high and stable contribution of nuclear power in the country’s supply mix, but with Spain and Germany contributing around 1 million tons of Europe’s capacity, should they close, that would leave Norway as the dominant and largest supplier.

Citicorp’s warnings are not that far-fetched.

Germany embarked on a disastrous gamble with renewable energy called energiewende over the last decade, planned as an energy revolution to generate 80% of the country’s electricity from solar, wind and bio-mass by 2050.

The result has been that this year German consumers will be forced to pay €20bn ($27bn) to subsidize electricity from solar, wind and bio-gas plants, power with a real market price of €3bn ($4bn), according to the Telegraph.

To pay for this Green Adventure, surcharges on electricity for households have increased by 47% in the past year alone, the paper says. German consumers already pay the highest electricity prices in Europe, 40% more than France and the Netherlands and 15% more than the EU average.

Even worse, a policy designed to reduce greenhouse gas emissions has actually increased them. While the rest of Europe’s have fallen by 1.3% due to the recession, Germany’s have increased by 1.8%, mostly due to a switch to coal and heavy oil to keep the lights on when the wind fails or it goes dark.

While heavy industrial power users like steel, aluminum and cement sectors have gained reduced levies compared to domestic consumers, they have still had to foot a €740m ($1bn) increase – and even that protection is at risk if the EU’s current investigations rules them illegal. Likewise Spain and, to a lesser extent, Italy, have invested heavily in solar and wind, providing subsidies that a more austere Europe may struggle to maintain in the years ahead.

It is no surprise, then, that the domestic smelting industry in Europe is at such risk.

Coming Up: Will higher aluminum prices save Europe’s smelters?

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