Column: Can Europe save its industrial metal production sector?

LONDON, Sept 14 (Reuters) – A massive and rapid deployment of renewable energy is at the heart of Europe’s drive to end its dependence on Russian fossil fuels. Solar energy will be “the linchpin of this effort”, according to the European Commission.

The only problem is that the global solar supply chain is currently dominated by China, a dependency that will only grow if Europe continues to lose industrial metal production capacity at the current rate.

High electricity prices have already forced the closure of aluminum and zinc smelters and pose an “existential threat” to Europe’s entire metals supply chain, industry group Eurometaux warned earlier this month. month. Read more

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The message seems to be getting through, with European Commission President Ursula von der Leyen today promising a critical raw materials law to increase the bloc’s metal self-sufficiency.

But is it going far enough and is it already too late for some parts of the region’s industrial base?

Structure of the German baseload electricity market

THE METALS PARADOX

European aluminum smelters were among the first to close because they are energy-intensive plants, using electrolysis to convert alumina into metal.

But aluminum is one of the critical metals for decarbonization. One of its uses is in solar panels, with one megawatt of photovoltaic capacity requiring an average of 21 tons of metal, according to the European Aluminum Association.

Europe is now caught in the middle of this paradox, needing more aluminum to achieve its ambitions for solar capacity but lacking the available energy to produce enough aluminium.

Western Europe’s annualized aluminum production fell below three million tonnes for the first time this century and will fall further. The Dunkirk foundry in France, one of the largest in Europe, is the latest to announce a partial closure. Read more

The regional supply crisis has sent physical premiums skyrocketing, with European buyers currently paying around $440 a tonne above the London Metal Exchange spot price for the metal.

Imports have inevitably increased, including raw metals from China, or at least China’s bonded warehouse areas. The country exported around 60,000 tons to the Netherlands in the first half of this year, an unprecedented change in the normal pattern of trade.

The aluminum paradox has spread to the European zinc sector, where two major smelters have been shut down and others are adjusting their speeds as they try to weather peak periods. Read more

In truth, all production of industrial metals uses significant amounts of energy, more at the primary metal stage than at the stage of manufacturing the product in the chain. But everyone in the chain, from the foundry to the manufacturer, is to some extent affected by the drastic change in electricity prices in Europe.

Annual change in aluminum production in Western Europe annualized

CRITICAL METALS

European policy makers have become aware of the region’s critical mineral weaknesses.

“We cannot sleepwalk into another overreliance in a strategic area,” European Commission Vice-President Maroš Šefčovič told a commodity security conference in Prague earlier this month.

The Critical Raw Materials Act aims to accelerate the development of national metal processing capacity from mine to processing plant to recycler.

The key question, however, is which metals are considered “critical”?

So far, the European Commission has mainly focused on battery inputs for electric vehicles.

The European Battery Alliance, launched in 2017, has generated 110 major battery projects across Europe, according to Šefčovič. The Critical Raw Materials Alliance, launched in 2020, is an extension of the policy of securing metal supplies from new gigafactories.

The European Union’s list of critical minerals is therefore heavy on battery inputs such as lithium, cobalt and graphite and the esoteric members of the rare earth family used in electric motors.

Bauxite, from which aluminum is made, was added to the list in 2020, but that inclusion does not appear to have drawn the attention of policymakers to the plight of the aluminum smelters needed to produce the metal.

The European Aluminum Association has lobbied intensively against the proposed Carbon Border Adjustment Mechanism, arguing that in its current form it will eliminate European capacity and increase the bloc’s dependence on imports .

This suggests a lack of common thinking within the Commission. If the bauxite value chain is truly a critical resource for Europe, it should include both smelters and manufacturers, who have their own beef against EU import tariffs.

GO GO…

Copper, nickel and zinc are not on the European list, although the United States considers these three metals critical.

The European Commission’s focus on metals of the future seems to have taken precedence over older metals which also need to decarbonise.

Silicon is on the EU list of minerals, but photovoltaic cells will not work without aluminum panels or copper to connect power to the grid.

The European Union must follow the United States and take a broader view of the metals it needs to meet its green ambitions, especially after Russia’s invasion of Ukraine.

Russia has always been a major supplier of aluminum, copper and nickel to Europe, but is now a high-risk source after what it calls its “special military operation”.

The new instability of supply is one more reason for the European Union to strengthen its domestic capacities.

This should start with protecting what it already has rather than focusing exclusively on creating entirely new battery metal supply chains.

The 40 CEOs who signed their deal with Eurometals’ stern warning are calling for a series of emergency measures to protect against further shutdowns.

An overhaul of Europe’s power sector, also announced today by von der Leyen, should help, but further emergency measures are needed to avoid further metal shutdowns over the coming winter months.

Because aluminum has another lesson for European policy makers. Temporary foundry closures in the past have most often turned into permanent closures as the costs of reopening increase over time.

The opinions expressed here are those of the author, columnist for Reuters.

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Editing by;Editing by Elaine Hardcastle

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The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and non-partisanship by principles of trust.

Andy Home

Thomson Reuters

Senior metals columnist who previously covered industrial metals markets for Metals Week and was EMEA Commodities Editor at Knight-Ridder (later Bridge). He started Metals Insider in 2003 and sold it to Thomson Reuters in 2008. He is the author of “Siberian Dreams” (2006) about the Russian Arctic.

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