Affected by the Russian-Ukrainian conflict, this year’s European electrolytic aluminum production capacity has been declining, this week, as Russia indefinitely stop running “Nord Stream 1″ gas pipeline, European electricity prices rose sharply, there is news that Europe’s largest electrolytic aluminum production enterprises will start next week to increase production cuts, the impact of this, the domestic electrolytic aluminum listed companies share prices rose sharply.
Cai Lian News Agency reporter learned from industry sources, the current European electrolytic aluminum production capacity reduction has been more than 1 million tons, is expected to winter before there is a further reduction in production may. But because the European electrolytic aluminum overall production capacity is small, its production reduction to the electrolytic aluminum market supply and demand and price impact is small, production reduction and electricity prices will have a wave of positive aluminum prices, but is not expected to form a long-term trend. There are also related listed companies said to reporters: “At present, the company’s factory aluminum prices have not changed significantly.”
As a considerable part of Europe’s electricity supply comes from natural gas power generation, Russia’s cessation of gas supply has a huge impact on Europe’s electricity supply.
Wang Yanchen, general manager of Shanghai Nonferrous Network UK, told Cai Lian News Agency that previously the French Dunkirk Aluminum Company had cut production by 15%, and this time the other party said it might cut production by 22%, mainly due to the shortage of power supply and high electricity prices in France.
In addition, Alcoa’s aluminum smelter production in Norway will be cut by one-third, and Norsk Hydro also said it plans to close its aluminum smelter in Slovakia at the end of September.
Wang Yanchen told Caixin: “Today, the highest time electricity price in the spot market in France is 626 euros/MWh, compared with the highest time electricity price of 257 euros/MWh on Feb. 1, the price rose nearly three times. All European electrolytic aluminum production capacity of about 4.8 million tons, now the production capacity has been suspended more than 1 million tons, is expected to have further production cuts before winter.”
Wang Yanchen believes that before winter European aluminum enterprises or further production cuts, on the one hand, the price of electricity is too high, because the vast majority of European aluminum plants are based on long-order power contracts, a part of the contract can be sold back to the power grid company, due to the current price of electricity is higher than the purchase price of electricity, aluminum enterprises rely on the profit of selling electricity may be higher than the profit of producing electrolytic aluminum, some enterprises may stop production to sell electricity.
At present, Europe Iceland and Norway power supply is less affected, in addition, most of the other countries electrolytic aluminum enterprises are reduced production.
European electrolytic aluminum production reduction forecast (Photo source: Dongwu Futures)
Wu Shu of Dongwu Futures told Caixin that the optimistic expectation is that the increased production reduction in the second half of the year can be controlled within 100,000 tons, and the pessimistic expectation may be 500,000 tons of production reduction. “At present, the development of the situation can be said to be closer to the pessimistic expectations.”
In addition, Wang Yanchen worry: “Due to high inflation in Europe and the United States, may cause further production cuts in aluminum plants due to labor negotiations issues. And this risk is not just European countries, other regions such as the United States, South Africa may also exist.”
Wu Shu believes that “the recent production reductions in Slovakia, Norway and France are within the expected amount, and the news of production reduction has little impact on the plate.”
Wang Yanchen told Caixin: “The current electrolytic aluminum production capacity is reduced, but because European demand is also becoming weaker, so the impact on the supply and demand structure is not significant, and LME aluminum prices remain relatively stable.”
In the supply reduction at the same time, the European demand for aluminum is also declining, a few days ago large aluminum rolling company SPEIRA said the German plant will reduce production by 50%. “To the German automotive industry, for example, due to the shortage of chips and some parts, the production of cars has fallen, and the demand for aluminum has also seen a large decline.” Wang Yanchen said.
In addition, export data show that China’s exports of unwrought aluminum and aluminum 652,000 tons in July, while exports of 540,000 tons in August, there was a decline of a certain magnitude, or side-by-side evidence of the downward trend of overseas demand.
Wang Yanchen also said, because part of the European aluminum smelting capacity once closed is difficult to restore, the future with the recovery of the economy, the European manufacturing industry with aluminum or increasingly dependent on imports.
Recent domestic market prices are also relatively stable, aluminum prices are not affected by European production cuts. Nanshan Aluminum (600219.SH) company sources said to Cai Lian News Agency reporter: “At present, the company’s factory aluminum prices have not changed significantly.”
Wu Shu said, “electrolytic aluminum fundamentals are difficult to see the good news, although the inventory is low but consumption is not good, did not reach the peak season level, the price rise is more difficult.”
As the domestic electrolytic aluminum production capacity of more than 40 million tons, aluminum price changes are still dominated by the domestic supply and demand structure, so the current events on the electrolytic aluminum price is the impact of the expected Fed rate hike on commodities and the domestic Chuan Yu production cuts.
Wu Shu said: “Although Sichuan and Chongqing production cuts, Yunnan hydropower shortage let the market have concerns about the supply side, but the domestic new production and resumption of production capacity is relatively large, from the total amount of domestic production capacity is still at a high level in previous years. European production cuts and high electricity prices will have a wave of positive aluminum prices, but can not form a long-term trend.”
As there is heating demand in Europe in the second half of the year, energy prices or to maintain high, France and Germany next year delivery of base load electricity prices had exceeded 1,000 euros / MWh. But Wang Yanchen expects, “As the high price of electricity has caused people to march in some countries, has had an impact on social stability, the government will intervene in the electricity market, should not allow the price of electricity to rise to the level of 1,000 euros.”
Post time: Sep-09-2022