January 13, 2023

Due to lower electricity costs, Aluminium Dunkerque, which owns and operates the EU’s largest aluminum smelter, has started increasing production, according to Bloomberg. The company plans to have output at full capacity by May. The plant, which produced 290,000 mt of aluminum in 2021, cut output by 22% last September as soaring electricity costs made smelting unprofitability. However, French month-ahead power prices have dropped over 80% from the October peak, thereby making aluminum smelting feasible again. According to Bloomberg, Aluminium Dunkerque buys most of its power through a French nuclear-power program known as ARENH. The remainder of its power needs is purchased at market prices. Thus, Aluminium Dunkerque has been able to endure the European power crisis better than other smelters.  Throughout most of 2022, electricity prices across Europe surged to record highs because of decreased natural gas flows from Russia. (Source: Bloomberg)

AEGIS has been diligently tracking European smelter curtailments since the start of the Russia-Ukraine conflict. We note that this first announcement of a smelter bringing production back online due to the recent drop in electricity prices. We also note that Aluminium Dunkerque’s announcement comes just as global aluminum seems to be on the upswing. For example, China has just implemented a slew of economic stimulus measures that aim to boost its faltering real estate sector. Those measures, along with continued robust demand in North America, could be supportive of aluminum prices. Aluminum end-users that are concerned about increasing prices could consider buying swaps or call options, as either would establish a maximum aluminum price. Such positions are standard for consumer hedging; however, they can result in opportunity costs or cash costs if metal prices decrease. Please contact AEGIS for specific strategies that fit your operations.

*Please note that our offices will be closed on Monday, January 16 due to the Martin Luther King Day holiday. We will not produce a Metals First Look that morning. However, the trading desk will provide LME coverage, and current clients can contact metals@aegis-hedging.com for indications. * (1/13/2022)

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