The metal and steel industries are having real problems to carry out their production in Europe and Spain. These are sectors that make intensive use of energy in their metalworking processes, so the high prices of recent months are triggering closures and stoppages in the factories of the large companies operating in this market.
Undoubtedly, high gas costs resulting from geopolitical tensions with Russia are the main problem, but not the only one. Attention is also focused on price volatility and the production of raw materials used in the manufacture of alloys such as steel, a material that may experience a contraction in demand, according to experts.
In this regard, aluminum supply disruptions in Europe and China and production cuts in China, as well as serious energy problems in the aluminum market as a result of a major drought, add further pressure to an already affected sector.
Aluminum, like iron and nickel, is one of the main components used in steelmaking, and it is in China that the material is particularly important, as it is the world's largest producer. The Asian giant generates around 40 million metric tons of aluminum per year, accounting for more than half the world's production, well ahead of countries such as India, Russia and Canada.
DROUGHT IN CHINA COMPLICATES ALUMINUM PRODUCTION
As irrelevant as the metal in question may seem in terms of information, aluminum shortages can lead to a spiral of negative consequences for many active industries and, in general, for society.
This is why the recent measures taken by the country's main companies could deal another heavy blow to the metal industries and, consequently, to sectors such as the automotive, railway and wind energy industries, which use steel to manufacture their end products.
Aluminum smelters in China's Yunnan province, which account for more than 12% of China's aluminum production, have been ordered to reduce their output by 10% amid the country's hydroelectric power shortage. The nation presided over by Xi Jinping has been suffering from one of the worst droughts in its history since August, with extreme temperatures that have drained more than 60 rivers.
A situation that directly affects thousands of crops and increases energy difficulties. These production cuts in China come on top of European and North American smelter closures, as well as production reductions over the past 12 months as electricity prices have climbed to record highs.
ACERINOX AND ARCELORMITTAL PUT THE BRAKES ON IN SPAIN
The effects of this great crisis in the industry are well reflected in two of the most important multinationals operating in Spain: Acerinox and ArcelorMittal. The steel companies listed on the Ibex 35 are two of the companies that have lost the most value so far this year, falling by 25% and 22% respectively.
Tensions in the aluminum market, energy prices and a possible retraction in the demand for steel due to the complicated real estate situation in China are hurting the steel companies despite their solid profit and loss accounts. Although the bulk of their business is outside Spain and Europe, the energy crisis is forcing them to take drastic measures in the different factories that the companies have on the ground, with consequences for hundreds of workers.
Thus, while ArcelorMittal (the world's second largest steel manufacturer) has indefinitely stopped the blast furnace at its factory in Asturias and delayed its return to activity after its traditional August stoppage in Sestao (Vizcaya), Acerinox applied on September 1 the ERTE agreed with the workers of the plant in Algeciras (Cadiz).
Similar decisions have been taken by multinationals in countries such as France and Germany, where electricity prices have reached higher levels than in Spain in recent months due to their greater dependence on Russian gas. Thus, the cascade of plant closures by multinationals has spread throughout Europe.
RENEWABLES AT RISK
From the German cities of Bremen and Hamburg to France's Dunkirk and Poland's Dabrowa Górnicza have seen their steel mills come to a standstill in recent weeks. The situation is dire for the industry and dozens of metallurgical companies have already warned Brussels of the serious effects if they do not manage to solve the energy crisis.
In fact, metallurgical entrepreneurs who have appealed for EU intervention in the energy market stress the importance of fixing the crisis if climate targets are to be met.
There are many parts of the European value chain in the renewables sector that are at risk. Grid infrastructures, batteries, electric vehicles, solar panels, wind turbines or hydrogen electrolyzers are some examples of goods and equipment in the renewable energy business that require metals.
METAL VOLATILITY WILL CONTINUE TO PRESSURE
Against this dramatic backdrop, the metals market is also taking center stage in 2022 due to the high volatility in which commodity futures have been trading for months. The example can be found in this week's data, when base metal prices were under upward pressure on Tuesday following the release of negative inflation figures in the United States.
For experts, the liquidity crisis continues to hamper commodity markets, with no end in sight to the volatility. This is why open interest in commodity markets, from aluminum to gas to oil and other base metals, remains at multi-year lows.
And, as in every crisis there are always winners, this one was not going to be any less. With the extreme volatility of metals, some of the big investment banks such as Goldman Sachs, Citi and Macquarie have been obtaining high returns thanks to their bet on this market and that of other commodities such as gas or oil, which have experienced meteoric rises in a short time. Undoubtedly, turbulent times are also an opportunity for profit for a few.
