The metal and steel industries are experiencing real problems in carrying out their production in Europe and Spain. These are sectors that make intensive use of energy in their metal manufacturing processes, which is why the high prices of recent monthsare triggering closures and stoppages in the factories of large companies operatingin this market.
Undoubtedly,high gas costsresulting fromgeopoliticaltensionswithRussiaare 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, disruptions to aluminum supplies in Europe and China and cuts in production in the Asian country, as well as serious energy problems in the aluminum market as a result of a major drought,are adding further pressure to a sector that is already struggling.
Aluminum, like iron or nickel, is one of the main components used in steel manufacturing, and it is in China where the material takes on special relevance, given that it is theworld's largest producer.The Asian giant generates nearly 40 million metric tons of aluminum per year, accounting for more than half of global 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 termsofnewsworthiness,aluminum shortages can lead to a spiral of negative consequencesfor many active industries and, in general, for society.
That is why the recent measures taken by the country's leading companies could deal another severe blow to the metal industries and, consequently, tosectors 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. Since August, the nation led by Xi Jinping has been suffering one of the worst droughts in its history, with extreme temperatures that have drained more than 60 rivers.
This situation directly affects thousands of crops and increases energy difficulties. These production cuts in Chinaare in addition to European and North American smelter closures, as well as production reductions over the last 12 monthsas electricity prices have climbed to record highs.
ACERINOX AND ARCELORMITTAL PUT THE BRAKES ON IN SPAIN
The effects of this major crisis in the industry are clearly 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 25% and 22% respectively on the stock market.
Tensions in the aluminum market, energy prices, anda possible decline in steel demand due tothe complicated situation in China's real estate sector are hurting steelmakers despite their solid financial results. Although the bulk of their business is outside Spain and Europe,the energy crisis is forcing them to take drastic measures at their various factories, with consequences for hundreds of workers.
Thus, while ArcelorMittal (the world's second-largest steel manufacturer)has indefinitely shut down the blast furnace at its factory in Asturias anddelayed its return to activity after its traditional August shutdown in Sestao (Vizcaya), Acerinox implemented the ERTE agreed with the workers at the Algeciras plant (Cadiz) on September 1.
Similar decisions have been taken by multinationals in countries such as France and Germany, where electricity prices have risen above Spanish levels in recent months due to their greater dependence on Russian gas. Thus,the cascade of plant closures by multinationals has spread throughout Europe.
RENEWABLES ARE IN DANGER
From the German cities of Bremen and Hamburg to Dunkirk in France and Dabrowa Górnicza in Poland, steel factories have been forced to shut down in recent weeks.The situation is critical for the industry, and dozens of metalworking companies have already warned Brussels ofthe serious consequences if a solution to the energy crisis cannot be found.
In fact, metal industry executives who have called for European Union intervention in the energy market stressthe importance of resolving the crisis if climate targets are to be met.
The fact isthat many parts of the European value chain in the renewable energy sector are at risk. Network infrastructure, batteries, electric vehicles, solar panels, wind turbines, and hydrogen electrolysers are just some examples of goods and equipment in the renewable energy business that require metals.
METAL VOLATILITY WILL CONTINUE TO EXERT PRESSURE
Against this dramatic backdrop,the metals market is also playing a leading role in 2022 due to the high volatility that has characterized futures trading inthese commodities for months. An example of this can be found in this week's data, when base metal prices were pushed upward on Tuesday after negative inflation figures were released in the United States.
Experts believe thatthe liquidity crisis continues to hamper commodity markets, with no end in sight to the volatility. That is why open interest in commodity markets, from aluminum to gas, oil, and other base metals, remains at multi-year lows.
And, as in every crisis, there are always winners, and this one is no exception. With the extreme volatility of metals, some of the big investment banks such asGoldman Sachs, Citi, and Macquariehave been obtaining high returns thanks to their commitment to this marketand other commodities such as gas and oil, which have experienced meteoric rises in a short period of time. Without a doubt, turbulent times are also an opportunity for profit for a select few.
