Energy prices in Europe | The shattered aluminum industry

The aluminum sector is one of the first victims of the sharp rise in energy prices in Europe, where the first foundry closures have been announced. And more will follow, impacting other metals producers in other parts of the world.

Posted at 9:00 am

Helen Barill

Helen Barill
The press

“The crisis is completely changing the game in the industry,” said Jean Simard, president and CEO of the Canadian Aluminum Association, which brings together Canadian producers Rio Tinto, Alcoa and Alouette, who account for 5% of world production.

Corresponding FinancialTimes London, High energy prices have already forced European companies to cut aluminum and zinc production by 50%. Aluminum-intensive industries such as aerospace and automotive will therefore have to resort to imports.

On this side of the Atlantic, Québec’s aluminum sector is unlikely to benefit from the misfortune of European producers. On the one hand, the energy crisis will plunge the European economies into recession, which will reduce global demand for aluminum, explains Jean Simard.

On the other hand, Quebec’s aluminum smelters, which produce 90% of Canada’s metal, are already operating at full capacity and their export opportunities to Europe are limited.

We might be tempted to think that this will create opportunity [pour les alumineries québécoises]but that is not the case.

Jean Simard, President and CEO of the Aluminum Association of Canada

Aluminum smelters in Quebec are already producing at 93% of their capacity. Companies are already doing everything they can to maximize their production with the energy available to them.

Last year, Alcoa invested $63 million to increase production at its Deschambault plant, and Rio Tinto increased production at its Arvida plant in Saguenay by 25,000 tons per year.

The next investments to significantly increase production in Quebec, according to Jean Simard, are linked to the new low-carbon production technology currently being developed in Saguenay.

Limited Effect

Therefore, if Europe plunges into a deep recession and China, grappling with drought problems reducing its aluminum production capacity, absorbs Russian aluminum hit by international sanctions, the impact of this upheaval in Quebec’s aluminum industry should be limited.

“We must not lose sight of the fact that the North American market is the most important market for us,” stresses Jean Simard.

Most of the aluminum produced in Québec, more than 80%, is exported to the American market, where demand is undiminished. On the contrary, it could even increase with the plan recently passed by the Biden administrationAnti-Inflation Actwhich envisages massive investments in green energies.

“I see that as positive” for the aluminum sector in Canada, says Jean Simard.

As they await the potential fallout from the Biden plan, aluminum producers in Canada are reaping the gains fueled by the metal’s high price in the international market.

For the first half of 2022, Rio Tinto reported $1.5 billion in profits in its aluminum sector, up 68% from the same period last year.

Alcoa reports that its net income grew in the past two quarters to more than $1 billion in 2022 from $484 million last year.

Learn more

  • $4000
    Aluminum price reached $4000 per ton in March 2022 after Russian invasion of Ukraine. Since then, a ton of metal has traded between US$2350 and US$2450.

    Source: Bloomberg

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