EC electricity reforms not enough to save aluminum industry from further cuts: associations

Plans laid out Sept. 14 by the European Commission to reform electricity markets and reduce gas prices are a welcome first step, but are insufficient to save the energy-intensive aluminum industry from further production cuts, job losses and a possible complete breakdown, European Aluminium said Sept. 15.

In addition, European nonferrous metals industry trade association Eurometaux said late Sept. 14 that the measures did not provide relief for metals producers.

The new EU regulation will review electricity markets to decouple power prices from the dominance of gas, and outlined plans for mandatory peak power demand reduction targets, revenue caps for inframarginal power generation types and a solidarity contribution by energy companies that benefit from super profits due to the war in Ukraine.

While the measures might provide some much-needed immediate relief, European Aluminium said they did "very little to tackle the extremely high energy costs," gas prices in particular, and needed to be adjusted.

"We're glad to see the Commission listened to our calls for the need to safeguard hedging possibilities and introduce further incentives for signing renewable power purchase agreements," European Aluminium Director General Paul Voss said.

"However, as one of Europe's most exposed industries, we need much more relief from the exorbitant gas prices to keep our factories open," Voss said, adding that there was concern that the proposals did not support a critical industry like aluminum.

He urged EU energy ministers to take additional measures during the next council meeting on Sept. 30, saying that without further action, Europe risked becoming completely dependent on imports.

Eurometaux said the proposed price cap would still expose European industry to "skyrocketing" electricity prices, while there was also no guarantee that the collected revenue would be directed to struggling sectors or be sufficient.

While the EU had confirmed an update to the Temporary Crisis Framework in October, Eurometaux said this should be delivered urgently to support companies.

"Today's package does not give our companies the support or clarity they need to get through this critical winter," Eurometaux Director General Guy Thiran said.

"We need immediate emergency actions to address Europe's spiraling industrial crisis, instead of more debate later in September," he said, adding that the EU energy crisis support package lacked attention to energy-intensive industries.

European associations representing energy-intensive industries, including Eurofer, Eurometaux, Earomines and Euroalliages, among others, previously sent a letter to the EU presidency Sept. 6 calling for urgent and effective action at EU level on gas and electricity prices.

This was followed Sept. 13 by a joint statement calling for immediate and precise relief measures.

Energy costs account for 40% of aluminum production costs

Energy costs account for 40% of total primary aluminum production costs normally, European Aluminium said, which meant high energy prices had resulted in production cuts.

It estimated that 1.1 million mt, or half, of Europe's primary aluminum production capacity would be lost by the end of 2022, replaced by increased production in China, where the carbon footprint was almost three times higher.

According to Eurometaux, rising energy costs had already closed 50% of the EU's aluminum and zinc capacity, as well as 30% of silicon and ferro-alloys production, with the copper and nickel sectors also affected.

It noted that, once a plant closed, it was difficult to reopen due to time, costs and the competitive conditions.

So far, there have been shutdowns at Norsk Hydro's Slovalco smelter in Slovakia, Alro's alumina facility in Romania and Damco Aluminum Delfzijl Cooperatie's Farmsum plant in the Netherlands.

There has also been a 33% curtailment at Alcoa's Lista smelter in Norway, a 20% production cut at France's Aluminium Dunkerque, a 59% production cut at Speira's Rheinwerk smelter in Germany and reduced output at Alcoa's San Ciprian alumina refinery in Spain.

Hydro also decided to keep smelting pots at its Husnes and Karmoey plants in Norway offline after normal maintenance.

Despite the capacity closures, aluminum prices have been weak, with the London Metal Exchange three-month price closing at 2,270.50/mt Sept. 14, down 19.3% since the start of the year and down from an intra-year high of $3,984.50/mt reached March 9.

"Even before the crisis, European aluminum producers faced much higher energy prices than their competitors because of the regulatory costs associated with the EU's unique energy market design," Voss said, adding that the industry's competitiveness was at stake and it was facing eradication.

He called for EU policy makers to swiftly amend the proposed measures, such as using the proceeds from the temporary solidarity contribution to finance schemes under the EU Temporary State Aid Framework to support critical industries.

"It should also be clear that they must be used by national governments to alleviate not only high electricity but also high gas prices" Voss said.

"We need EU leaders to agree a short-term crisis response to keep companies afloat without delay, combined with a medium-term framework that enables them to emerge stronger from this crisis, including the rapid scale-up of new power purchase agreements with renewable energy sources," Thiran said.

Temporary action is needed to address high gas prices in a targeted way to ensures power prices at levels to allow the survival and competitiveness of industry, Eurometaux said.

"In line with its demand reduction goals, the EU should also implement schemes that support industrial consumers in providing demand response flexibility and interruptibility to ease pressure on the grid and provide new support for longer-term care and maintenance curtailments," the association said.