GRAPHIC-Power fuels soaring aluminum prices to record in Europe

By Pratima Desai

LONDON, Jan. 11 (Reuters) – Aluminum costs for European consumers hit record highs amid skyrocketing energy costs and production cuts, which have exacerbated deficits of the metal used in sectors energy, construction and packaging.

Consumers who buy aluminum in the physical market typically pay the benchmark price on the London Metal Exchange – around $ 2,950 per tonne on Tuesday – plus a physical market premium that typically covers freight charges and taxes.

But the shortages mean traders and producers with stocks are able to order a significantly larger premium, which in Europe has climbed nearly 30% to a record high of $ 428.75 per tonne since early 2022. .

“With around 650,000 tonnes of reduced capacity so far in Europe, we believe an additional 900,000 tonnes of production is at risk of shutting down fully or partially,” said Michael Widmer, analyst at BoA Securities.

Widmer expects aluminum demand in Western Europe to be 8.5 million tonnes this year and a deficit of five million tonnes. He expects world consumption of 72 million tonnes and a deficit of 254,000 tonnes.

Smoother-than-usual wind speeds in Europe last year and wind turbines across the block producing less electricity have exacerbated a crisis that has pushed electricity prices to record highs as utilities governments had to buy more coal and rare and expensive natural gas.

Before the electricity crisis, energy accounted for up to 40% of aluminum smelting costs. Depending on hedges and energy sources, this figure has risen to 50% or more for many growers.

Production cuts in Europe include those at Alcoa’s San Ciprian plant in Spain, American Industrial Partners’ Dunkirk smelter in France and the majority-owned aluminum plant by Norsk Hydro in Slovakia.

“As we move into 2022, European producers are still plagued by high electricity costs and there seems to be no sign of a quick fix to the problem,” said Wenyu Yao, analyst at ING.

Yao expects the global aluminum market to run a deficit of around 1.5 million tonnes this year.

“Inventories should have started building up in China’s (largest producer) onshore market according to seasonal patterns,” Yao said. “But instead they fell to 766,000 tonnes on Monday, well below the five-year average.”

Aluminum shortages since the start of last year have resulted in inventory drawdowns, which in LME warehouses have more than halved since mid-March last year.

(Reporting by Pratima Desai; editing by Jason Neely)

Mary I. Bruner