The aluminum industry is seeing a sharp slowdown as smelters and refiners cut production.
Russia’s war in Ukraine has sparked an energy crisis in Europe.Despite a supply squeeze, aluminum prices have plummeted as traders anticipate a slowdown in demand.A curious tug of war continues in the Aluminum industry. It remains focused on likely demand destruction due to recessionary forces, generally blamed on central banks’ rapid raising of interest rates. Of course, we’ve all watched base metals come off sharply since the end of Q1, and Aluminum has been no exception.
On the other hand, supply shows increasingly showing signs of distress. This remains most noticeable in Europe, where a string of primary Aluminum smelters and alumina refineries have been partially or fully closed due to massive rises in power costs. It’s worth noting that high power costs are usually supportive of aluminum prices.
Some might remember how natural gas prices started rising last year. Most of this was due to Russia restricting supplies over “depleted inventories” and “maintenance issues.” In hindsight, it’s clear the move was a prelude to the invasion of Ukraine. The intention was most likely to run European inventory levels down and heighten the sense of panic in European capitals. Of course, that’s exactly how it has played out.
In fact, Europe’s anxiety over gas supplies remains so high that it’s already beginning to unravel the previously robust and unified response to the war in Ukraine. As self-interest begins to overcome outrage at Russia’s unprovoked attack, differences in opinion are starting to wedge gaps between states.
Of course, Italy’s political meltdown following the resignation of Mario Draghi this month was not a direct result of the conflict. Still, how the EU’s third-largest economy will respond to threats of gas rationing does not bode well for Europe’s unified front. This will prove especially true if the country embraces more right-wing politics in the next round of elections as expected.
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