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13. January 2010

Aluminium output withering in Europe on power costs

Bloomberg reported that rising aluminium prices in 2010 may not be enough to halt the decline in European output of the metal as producers quit the region for cheaper electricity in the Middle East.

According to the European Aluminium Association, half of Europe’s remaining capacity may shut by the end of this year and two-thirds could be cut through 2013. Relying on imported metal would raise costs for fabricators of aluminium products such as foil and window frames, who employ more than 200,000 people in Europe. End users such as Volkswagen AG and Bayerische Motoren Werke AG would also end up paying more.

Mr Julian Kettle a London based analyst at metals Research Company Brook Hunt who has tracked the aluminium market for more than 2 decades said that “Western European smelters are gradually withering on the vine.”

According to UK research firm CRU International Limited, aluminium consumers in the European Union pay 3% duty on imports. Metal delivered into Rotterdam, Europe’s largest port, also incurs transport and insurance costs that are currently about USD 65 per tonne.

CRU said that the aluminium spot price dropped USD 67.50 or 2.9% to USD 2,275.25 per tonne as of 7:10 AM on the London Metal Exchange. On that basis, duty, delivery and insurance costs on imports were about USD 133 per tonne. Europe used 5.3 million tonnes and produced 3.9 million tonnes in 2009.

1. Italian Closures
According to Brook Hunt, Europe was the fourth biggest aluminium producer in 2009, trailing China, North America and Russia. It was the largest in 1940 accounting for half of global supplies of the metal that’s used in of cars, aircraft and beverage cans.
2. EU Probe
The EAA said that the European Commission’s emissions trading system imposes carbon dioxide quotas on utilities and requires those exceeding their limits to buy or borrow credits. European electricity prices are the highest in the world because generators pass on the cost of their emissions.

3. Spanish Tariffs
Mr Kevin Lowery spokesman of Alcoa said that the company is continuing dialogue in Spain to reduce costs. When asked for further comment, he referred to Alcoa’s Q3 filing, in which it said the Spanish tariffs conform to all applicable laws and regulations.

Mr Erik Brynhildsbakken spokesman of Hydro said that Rio Tinto Group stopped smelting at its 148,000 tonne plant in Wales at the end of the Q3 of last year after an energy contract ended. Hydro is evaluating the future of its Nuess smelter in Germany and the European Commission is still considering whether to approve Germany’s proposed EUR 40 million aid package for the plant.

4. Abu Dhabi Plant
Emirates Aluminium Company Limited started production on December 1st 2009. Emal, as the venture is also called, will reach its initial capacity of 700,000 tonnes per year by the end of 2010.

Mr Massimo Rossi an analyst at London based researcher CRU Group said that “With the full ramp up of Qatalum and Emal, output in the Middle East will continue to grow.”

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