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How European Metal Industry Survives the Winter

The European energy crisis is getting worse and worse, and a series of chain reactions begin to emerge. As the electricity price rises sharply due to the insufficient supply of natural gas, the European metal industry, which needs to consume a lot of energy in the production process, is facing an unprecedented "survival crisis", and the tide of enterprise production reduction and shutdown has emerged. Will the energy crisis bring a "devastating" blow to the European metal industry?
Recently, the largest aluminum smelter in Europe, Dunkirk Aluminum Company of France, announced a 22% reduction in output, the large aluminum rolling company Speira announced that it would cut the output of its German smelter by 50%, Alcoa would reduce the capacity of its aluminum smelter in Norway by one third, and Norwegian aluminum company Hydru would also close its smelter in Slovakia.
Other metal production enterprises are also facing a similar situation. Nyrstar, a large zinc smelting enterprise, said that it would close its large zinc plant in the Netherlands, and Otokumpu, one of the largest stainless steel manufacturers in Europe, would also delay the restart of a ferrochrome furnace.
The main reason for the large-scale production reduction of European metal industry is the energy crisis. The metal industry is a major consumer of electricity and natural gas. Take metal aluminum as an example. It takes about 14000 kilowatt hours of power to produce 1 ton of aluminum. Inadequate supply of natural gas has led to soaring electricity prices in Europe, increased production costs and worrying profit margins. The production cost of some metals even exceeds the futures quotation. Production means losses. Enterprises can only reduce their output to reduce losses.
At present, aluminum production in Europe has dropped to the lowest level since the 1970s. The head of an industry organization said that this was a real survival crisis. Dunkirk Aluminum said that the primary aluminum industry in Europe has paid a huge price for the energy crisis. If production is further reduced, the primary aluminum industry in Europe may disappear completely. Some producer groups even said that if the government does not introduce support measures, the energy crisis may lead to "deindustrialization" of the EU.
These views seem alarmist, but in fact they are reasonable. For the metal industry, once the factory or production line is shut down, it will cost a lot to restart it. Therefore, it is difficult to restart the closed plant in a short period of time, and it may even be permanently closed. With the spread of production reduction in European metal industry, the supply of upstream raw materials for manufacturing industries, including automobile and aircraft manufacturing, will further decrease and become more dependent on imports. In the context of the current crisis in Ukraine and the tension in the global supply chain, this is undoubtedly another bad news for European manufacturing.
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As the cold winter approaches, Europe has started the mode of "crazy reserve" of energy, but this winter is destined to be tough for enterprises. In the short term, enterprises can temporarily mitigate the cost increase caused by energy prices by locking electricity prices, signing long-term power supply orders, and using electricity futures to hedge electricity prices. However, in the long run, whether enterprises can survive the cold winter depends on how Europe can effectively solve the problem of energy supply.


Post time: Sep-20-2022