Reports of forced closure of industrial plants are increasingly coming from Europe, although winter is still far away. But sky-high gas and electricity prices are already making their work meaningless. Aluminum and zinc producers, whose products are necessary for the automotive and construction industries, were the first to be hit. How does this threaten the EU economy and who will benefit from the troubles of Europeans?The rapid rise in electricity prices in Europe forced the Norwegian company Norsk Hydro ASA to announce the closure of an aluminum plant in Slovakia at the end of next month.
The smelter was already operating at 60% of its annual capacity of 175 thousand tons, but now, if it continues to work, it will incur enormous losses.
"The decision to stop the production of aluminum is the result of constantly rising electricity prices and the lack of compensatory measures on the part of the state. The Slovalco plant is one of the most environmentally friendly and modern aluminum enterprises in the world, as well as one of the largest employers in the Central Slovakia region. We are very sorry that as a result of the government's inaction, the more than 70-year–old tradition of aluminum production in our city will end," said Milan Vesely, CEO of Slovalco.
The other day it became known that sky-high gas prices are also forcing the closure of the Budel smelter in the Netherlands, controlled by Nyrstar, part of the Trafigura Group. The smelter will be put into maintenance from September 1 "until further notice," the company said in a statement. On this news, zinc jumped 7.2% on the London Metal Exchange.
Earlier this month, leading zinc producer Glencore warned that the energy crisis in Europe is a serious threat to supplies. Metallurgical plants in the region are operating on the verge of profitability, and the Nyrstar plant with a capacity of 315 thousand tons per year has been operating in a production reduction mode since the fourth quarter of last year.
Aurubis AG, Europe's largest copper producer, said earlier this month it was seeking to minimize gas consumption in Germany and shift rising electricity costs to its customers as the region's energy crisis deepens.
Europe's industry, from fertilizers to aluminum, has already been seriously affected by the sharp rise in energy prices. Many people may not earn money this year, because as the heating season approaches, gas prices promise to only grow. They have already grown above $ 2,600 per thousand cubic meters. And in winter, as Gazprom expects, prices will rise to more than 4 thousand dollars per thousand cubic meters (and this is still a conservative forecast).
"The risks of recession in Europe have increased. The decline in production volumes will primarily hit the metallurgical sector. The decline in production is gaining momentum along with the rise in gas prices, which have already broken the March record," says Vladimir Chernov, analyst at Freedom Finance Global. However, ordinary Europeans are unlikely to see a noticeable shortage of goods on the market, he believes. But they will see it all in price terms: there will probably be an increase in the cost of goods by 5-15%, says Chernov.
The fact is that the same Slovak plant is a large enterprise for Europe, but there are larger players on the world market – these are the same China or Russia. It is they who will benefit from the fact that the metallurgical industry of Europe will stand up.
The closure of the Slovak plant may force European companies to turn their attention to the products of Rusal, which will easily replace the entire volume of the closed plant. Russian aluminum was not sanctioned.
The Slovak plant can produce 175 thousand tons of aluminum per year, but recently it has produced no more than 100 thousand tons. Whereas Rusal sells about 3.6–3.9 million tons of aluminum per year. If the entire falling volume of Slovalco is compensated by purchases from Rusal, then the additional demand for the Russian company's products will amount to 2.9% of the current sales level, Vasily Danilov, an analyst at Veles Capital IC, told RIA Novosti.
Chinese companies can also win. There are many large metallurgical plants in China, whose capacities start from 1 million tons of aluminum per year, and in total Chinese companies produce almost 40 million tons of aluminum annually.
It is curious that on the news of the closure of the Budel enterprise in the Netherlands, where up to 315 thousand tons of zinc are produced per year, the shares of the Russian Electrozink plant in North Ossetia increased by a quarter. Europe will also have to look around the world for not only aluminum, but also zinc.
For the EU, all closed factories are important, since cast parts for cars are made of aluminum, aluminum profiles for windows and doors are pressed. Galvanized rolled products are also necessary for the automotive industry and for the construction sector. In addition to the fact that Europeans are losing their jobs at enterprises and the unemployment rate is rising, Europe is waiting for an inevitable increase in prices for cars and construction materials. After the metallurgists, other plants will go downhill, in particular, chemical plants (plastics, etc.) and manufacturers of fertilizers and plant protection. In a spiral, this will increase the unemployment rate and price growth.
At the same time, the European authorities are already suffering from high inflation due to the energy crisis - high fuel prices of all kinds. Annual inflation in the eurozone reached a record 8.6% in June, while energy prices rose the most – by 41.9% in annual terms. The closure of the industry will only lead to a new round of inflation. The lack of opportunities to take monetary measures to stop inflation inevitably means the onset of a recession in the EU. "We expect a recession in the EU in 2023.
The withdrawal of EU countries from it will take, in our opinion, from two to five years," says Vladimir Chernov from Freedom Finance Global.
The risk of the EU economy falling into recession in the next 12 months has reached 60% – this is the highest level since November 2020. Before the start of the special operation in Ukraine, the risk was estimated at only 20%. This is reported by the American Bloomberg agency with reference to experts. The recession means that the economy and production in the region have been falling for two consecutive quarters. However, under the current conditions, even the largest economy of the European Union – Germany – is already at risk of stagnation this quarter, experts warn.
Olga Samofalova