Metals Prices Surge After Gas Crunch Crimps Output

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High energy bills prompt smelters to cut zinc and aluminum production

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Aluminum prices on the exchange jumped 3.6% to $3,164 a tonne, their highest level since 2008. China is cutting aluminum production, a heavily energy-intensive process, as it seeks to reduce its carbon emissions and ease its pressure. power grid.

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Belgium-based Nyrstar said on Wednesday that rising energy bills and the additional cost of EU taxes on carbon emissions meant it was “not economically feasible” to operate three plants in the Netherlands, Belgium and France at full capacity.

Metal production is the latest segment of the global economy feeling the pinch from rising gas prices, which are driving up energy bills for manufacturers.

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Natural gas reserves are depleted, while concerns about a cold winter in the Northern Hemisphere are fueling stiff competition among buyers in Europe, Asia and North America to race to replenish inventory.

European nations have been particularly affected by tight supplies from Russia and cutting their own gas production in an effort to reduce carbon emissions.

For metals, a shortage of gas means less production when demand is picking up. Demand for zinc, which is used in steelmaking, is strong as economies around the world reopen from coronavirus-induced lockdowns. Demand for aluminum for food packaging, cars and construction has also picked up.

Earlier this week, ahead of Nyrstar’s announcement of the cuts, the International Lead and Zinc Study Group lowered its forecast for a zinc surplus this year to 217,000 tonnes from 136,000 tonnes, to reflect stronger-than-expected demand . Next year, the group anticipates a small surplus of 44,000 tonnes.

According to ING estimates, the Nyarstar cut could mean a loss of zinc production of between 40,000 and 50,000 tonnes a month. The bank said a slowdown in energy-related production in China means that zinc production is also likely to be lower than expected.

Daniel Breesemann, a metals analyst at Commerzbank, wrote in a note to clients that any continued decline in production would leave the zinc market “seriously short in supply”.

Meanwhile, China’s aluminum production has been cut by 10% this year, or about 3 million tonnes, estimates Robin Bhar, an independent metals consultant.

“We’re seeing exceptionally strong demand at a time when you’re seeing supply crunch for aluminum and other metals … there’s a huge chasm between supply and demand,” he said.

Will Horner at [email protected]

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