Strict EU regulations imposing pressure on the aluminium producers

The Alunorf plant located in Germany’s Neuss city has a production line that the workers fondly call “the grill” and around this plant, several other smelters operate making the area one of Europe’s industrial clusters firing up to 960C, proving that the aluminium industry is a power guzzler.

However, the stringent environmental regulations adapted by the European Union are threatening to strangle the aluminium industry. 11 out of 24 smelters in the EU regions have shut down since 2007 as energy costs are becoming exorbitant as a result of the regulations.

Since 2007, Europe’s aluminium production has slumped by 40% especially since giants like Alcoa and Rio Tinto Alcan have shut down some major projects. The industries are instead moving to developing countries with more lax environmental regulations and much easier to pollute.

Electricity already contributes 30% of aluminium’s production cost, the EU regulations have pushed up the production costs by further 8% in the decade ending in 2012 as acknowledged by the European Commission.

The power companies are incurring greater costs due to EU’s cap-and-trade policy in the carbon market and the requirement to use renewables which is being percolated to the consumers who now have to pay higher charges for power.

Amidst all the extra expenditure in Europe for producing aluminium, the Middle East and Asia are marketing themselves as more lucrative areas for production offering attractive deals for power thus luring the producers out of Europe. Once the primary aluminium smelters leave EU, the downstream companies will follow suit, says Oliver Bell, the executive vice-president at Norsk Hydro.

Since the aluminium prices are not individually, it is decided through the LME, they cannot pass the additional costs to their customers making the cost burden heavier. This burden is said to become heavier as the commission plans to bump up the carbon prices from €6 per tonne to €30 in the coming years.

Aluminium companies say that the EU needs to come up with a broader compensation strategy to combat the rising prices if the industries are to survive.

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