High Energy Costs: Can Hydro Power Help Alleviate Lower Smelter Output?

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Recently, I had the pleasure of interviewing Trond Gjellesvik and Charlie Straface of Hydro. Hydro is a Norwegian company specializing in green energy and low-carbon aluminum products. It is based out of Oslo, but harbors multiple business locations around the globe. I was curious to learn how the company’s efforts correlated with the current price of aluminum products.

Trond and Charlie provided insight into how high-energy costs were impacting aluminum availability as well as the price of aluminum products. Most importantly, we discussed whether or not low-carbon aluminum were a cost-effective option for aluminum buyers, a key concern for procurement professionals.

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In your own words, what does your company, Hydro do?:

We specialize in aluminum casing (battery plates, for example). We also specialize in recycling aluminum scrap and placing these newly purposed aluminum materials into the market. As for our hydropower smelting, we’re based out of Norway. This is the primary place where we utilize hydropower using aluminum casing.

How are high energy costs impacting the price of aluminum?:

Hydro has its own power generation, so it’s not generally impacted by high energy costs. However, a lot of our European competitors have had to close down capacity due to high energy costs, with some exceeding a 60% reduction in aluminum output. This has certainly impacted the price of aluminum. After Russia invaded Ukraine, gas prices shot up tenfold, massively impacting Europe.

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At the moment, the long-term trend for smelting is to operate at reduced capacity because of the cost of power. Fracking has been low in the US. But even so, we’ve been better off in the U.S. because natural gas prices are falling. Therefore, high energy costs haven’t had a massive impact on us within the US. Europe has had it far, far worse. However, things in the U.S. can still be chaotic at times due to having to keep up with numerous price increases.

However, Europe did luck out this winter due to warm weather. Fears of a cold winter were heavy, so reservoirs in Europe for natural gas are at an all-time high. Norway is supplying a lot of gas to the European market at the moment, and this has helped tremendously.

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How are high energy costs impacting aluminum availability?:

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Availability is relatively balanced, and the prices have gone up from prior lows. Recently, however, it started tailing a bit back. Despite this, there is no shortage of aluminum. Supply chains were impacted last year, but the effects were largely mitigated.

Prices are still solid and high. But if you look at price increases for energy and inflation, the cost of aluminum smelting has increased. The cost curve is currently about the same as on the LME. So now we’re returning to more normal prices.

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To what extent do you see the current Midwest Delivery Premium as a reflection of energy prices? Specifically, with regard to the price of aluminum?:

The Midwest Delivery Premium is a reflection of global commodity prices. We break bases for commodity prices up by region. The main impact of this is how it affects the supply and demand balance. The other factor affected is the logistic cost of transporting materials from the production area to the market.

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Is it also impacted by supply chains and energy prices? Yes. If the cost of freight goes up, the MWDP will go up. The US and Europe are huge aluminum supporters, but a high cost of freight will certainly impact that. If Russian aluminum flows into other regions, this affects aluminum prices even further because Russian aluminum is cheaper to purchase. It’s not a protected market that has an isolated region.

The MWDP needs to be at a level sufficient enough to entice aluminum markets. It also needs to be sufficiently high enough to make it economically sensical to ship it into the US. It’s global, not regional.

Are we at risk of aluminum shortages in light of the 200% tariff?:

We’re not worried. Russian aluminum in the U.S. has dropped significantly for a variety of reasons. It started a few years ago when the country first sanctioned Russian aluminum. Since then, the U.S. has not relied on Russian aluminum for a while.

Basically, we don’t see a lot of impact from it. Imports of Russian aluminum are already low in the U.S., and there would be no significant impact from having to find other sources. Hydropower aluminum products, in particular, aren’t reliant on Russian aluminum.

Europe has had to close down a lot of smelting thanks to Russia’s impact on Ukraine, and it’s very hard for Europe to support that. They anticipate a lot of other aluminum users will do the same, particularly in the hydro-energy realm. Hydro actually self-sanctions itself against purchasing.

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Are sustainable aluminum options more cost-friendly to aluminum buyers? Most individuals in procurement have told us they would not pay for more sustainable metal. What do you make of this?:

There is a serious drive to decarbonize production and meet all of the targets. However, for it to become fast, everyone must move in tangent, which isn’t happening yet. But aluminum is a priced commodity, so you have pricing similar to the LME-delivered goods whether it’s aluminum power or cold power. Also, pricing for low-carbon products is still in its infancy, and the price of aluminum produced in this manner is no exception. This means there’s no pricing for a large portion of the aluminum market. So it’s a matter of when that will happen.

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But we have our own net-zero carbon technology. Also, recycling is a major part of decarbonization. This is especially true for aluminum. Currently, there is a lot of EOL (end-of-life) consumer scrap aluminum with zero-embedded carbon footprint coming into its second life. Recycling uses 5% of energy per ton of metal compared to cold production.

There is a pricing problem. Others are hesitant to switch due to the LME price setting the standard for pricing. Also, Europe is currently talking about carbon taxes. The goal is to get coal and natural gas users to switch.

Again, recycling is a massive part of the process. There’s a lot of aluminum scrap not currently in use. The technology trick moving forward is to sort and shred things like cars into different aluminum alloys. In low-cost countries, they sort it by hand after it’s shipped out of the U.S. So, a huge driver in zero-carbon aluminum relies on recycling.

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About

Trond Gjellesvik is Head of Commercial for North America at Hydro. He has been with the company for 20 years, starting as a commercial manager in 1998. Trond is an expert in many areas within the aluminum industry, including Hydro’s outlook on sustainability.utlook on sustainability.

Charlie Straface is the business unit president for Extrusions North America at Hydro. He has served in this role for over five years. He held a similar role with Sapa Extrusions before its merger with Hydro. Click here to learn more about Hydro Extrusions’ operations in North America.

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