Aluminum smelters in Germany and Spain are under the threat of closing down due to low prices of London Metal Exchange, excessive regulation and high power costs, an industry analyst said. Europe's strict labour and high energy costs and environmental laws have made it unprofitable to produce the primary metal in the region, David Wilson, Citigroup's director of metals research and strategy, said at Platts aluminium symposium this week.
"I think we'll see Spanish and German smelters close this or next year," he said at the Platts aluminium symposium. "There's no reason to produce aluminium in Europe." Wilson predicted production in Europe will go down to 2 million tonnes this year, the lowest since the year 1971.That is a small fraction of the global output of about 50 million tonnes.
The bleak outlook will urge the European government to introduce measures to save the struggling aluminium industry as production increases in the Middle East and Asia. Towards the end of previous year, Netherland’s last remaining smelters Aluminium Delfzijl (Aldel) with annual capacity of 110,000 tonnes, applied for bankruptcy after they had failed to negotiate an energy deal.
It will even increase fears about dwindling regional supplies mainly among Europe-based end-users who purchase aluminium for aluminium cars and cans. Consumers have urged for years to cut import duties on primary aluminium. France's smelters are less vulnerable due to its access to nuclear power, he said. Power accounts for almost one third of the aluminium producing cost. The US oil and natural gas shale revolution has cut down the power prices, giving some relief to the American producers.
Even so, smelters still struggle to compete with lower-cost capacity in the Middle East. Over the last 5 years the Middle East has come up as a major production hub. It is expected to produce 5 million tonnes this year, an increase of about a third from that of 2008, according to Walid Al Attar, executive vice president of marketing & sales for producer Dubal/Emal.
Notwithstanding the capacity cut by aluminium producers like Alcoa and Rusal, China, biggest producer of aluminium in the world, continues to raise its total output, market participants say. "We've not seen the output cuts the market really needs," he said. China has increased output by almost 10 percent in the first eleven months of the last year, while Western producers cut down their total capacity by 2 percent.
