Metals....8 Sep 2022 14:47
Found this viewpoint interesting ....
The machines have been turned off
Part of the problem of a just-in-time supply chain is that you can’t see most of it.
Logically, we know that there are millions of interchangeable parts being moulded, assembled and shipped every second of every day. But mere mortals like you and I don’t often see or hear about the middlemen. The third, fourth and fifth party, as they’re called.
So much price chatter starts with commodities and ends with consumer prices. Partly because the latter are most visible to the consumer and the former are most visible to traders.
But now one of the most visible parts of the supply chain – energy prices – is putting a stop on the invisible ones.
High energy prices are forcing Europe’s smelting capabilities to be either reduced or shut down completely. Aluminium is the most energy intensive metal to produce. With energy prices so high, it’s uneconomic to manufacturer the metal.
Europe accounts for 40% of total global smelting capacity. The union’s ability to morph metals into alloys is what feeds Europe’s factories.
Over August, two major European smelters have reduced output to the bare minimum: Slovenia’s Talum is running at one-fifth of capacity. Alcoa’s Lista plant in Norway is dropping to just one line of production. That’s one million tonnes of aluminium offline.
Then there’s the Budel zinc smelter in the Netherlands, which accounts for 2% of total global zinc output. As of 1 September it has been placed into care and maintenance until further notice.
Then you have the second-largest steel producer in the world shutting down two of its blast furnaces in Germany. Citing “outrageously” high energy prices, ArcelorMittal has closed two plants indefinitely as of September.
Base-metal smelting critical for defence
Granted, market demand for these products is low right now. But the high energy prices act as a disincentive for companies to stockpile base metals to sell at a later date.
The impact of these indefinite closures will take months and months to filter through to the consumer. A shortage of metals isn’t likely just yet. However, as we witnessed in the early days of Covid, demand can increase suddenly and send the price of things screaming higher in a short space of time.
But, in addition, we might not have factored in a more serious outcome.
Smelters are strategically important because they allow a country to have a strong manufacturing base and also support its military abilities. Alloys of zinc, nickel and aluminium are absolutely critical for building defence equipment.
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