A Brief Analysis of the Impact of European Energy Crisis on Basic Metals

The European energy crisis revolves around electricity, natural gas, and coal. It is very different from the traditional oil-based energy crisis. The specific manifestation is that the global prices of electricity, natural gas, and coal hit new highs.

The reasons include the following three points: First, the popularity of renewable energy power generation makes the power supply unstable, and when the power of renewable energy is insufficient, traditional energy power generation is needed to replace it; second, the growth of natural gas demand exceeds the growth of supply; It is due to the low level of natural gas inventories in Europe and insufficient capacity to deal with risks.

In terms of impact, from a macro point of view, on the one hand, the market’s concern about future stagflation in the economy has risen, and monetary policy has been under pressure; on the other hand, due to the sharp rise in energy prices, high energy-consuming industries have to cut production and stop production. Exacerbate the supply crisis and limit the economic recovery. From a micro level, on the one hand, energy shortages have put pressure on high energy-consuming industries such as base metal smelting to limit production; on the other hand, the sharp rise in energy prices has led to a significant increase in smelting costs. From the perspective of output, Aluminum, zinc, and nickel have a greater impact; from the cost perspective, only aluminum and zinc have a greater impact. Therefore, the energy crisis has the greatest impact on aluminum and zinc, followed by lead, and the impact on nickel and copper is relatively small.

Copper: According to ICSG data, Asia will account for 58% of global refined copper production in 2020, and Europe will account for 16%. In Europe, Russia’s refined copper output accounts for 4.23% of the world’s total, Poland’s 2.29%, and Germany’s 2.62%.

The region with the most serious energy crisis is Europe, where the production of refined copper accounts for 16%. If the power shortage continues to spread, the production of refined copper in this region will be greatly affected. However, judging from the current public information, it has not been seen that copper smelting enterprises have been significantly affected.

According to the data of the “China Nonferrous Metals Industry Yearbook” in 2018, the domestic copper unit energy consumption is about 480kgce/t, which is equivalent to about 1,600 kWh of electricity. Among them, the largest energy consumption is copper smelting and copper processing, with unit energy consumption of 285kgce/t and 193kgce/t. If only the electrolytic refining process is considered, the energy consumption is 107kgce/t, which is about 357kWh/t. If calculated based on the French October spot electricity price of 175 euros/MWh, the conversion is about 1.3 yuan/kWh. Therefore, the energy consumption cost of the refining process is 464 yuan/ton. Even if the energy consumption cost of the whole process is considered, it is only 2080 yuan/ton in terms of electricity price, which accounts for less than 3% of the current copper price cost. The actual cost of energy consumption accounts for a lower proportion. In other words, the impact of rising electricity prices on copper prices is very limited.

Aluminum: According to IAI data, the global electrolytic aluminum production distribution in 2020 will be in Asia (including China and the Gulf region) accounting for 74.7% of the total, Europe accounting for 11.9%, and the Americas, Africa and Oceania totaling less than 15%. From the perspective of major producing countries, China’s electrolytic aluminum output exceeds more than half of the global output, accounting for about 57.5%, followed by India, Russia, Canada, the United Arab Emirates, Australia and other countries. Since electrolytic aluminum is a high-energy-consuming industry, most smelting companies in the world are located in countries that are relatively rich in fossil fuels. For example, China and India are rich in coal resources, and Russia, Canada, and the UAE are rich in natural gas and oil. At the same time, energy expenditures in these regions The cost is relatively low.

At present, the energy shortage in Europe is the most serious, and the most direct manifestation is the sharp rise in natural gas and coal prices, which in turn leads to soaring electricity prices. Calculated based on the highest price of electricity in Europe in October, it was about US$210/MWh, an increase of about 400% year-on-year. The equivalent of RMB is about 1.36 yuan/kWh. Compared with the domestic average industrial electricity consumption of 0.56 yuan/kWh, the price of industrial electricity in Europe is almost 2.43 times that of domestic electricity. The energy consumption of electrolytic aluminum per ton of aluminum production in Europe is about 15,500 kWh. If calculated according to the electricity price in October, the electricity cost of electrolytic aluminum in Europe is 3255 US dollars/ton. Compared with the current LME spot price, the electricity cost alone has exceeded the selling price.

But in fact, most aluminum companies will sign long-term agreements with power plants, and the actual electricity price will be lower than the real-time price, and some aluminum plants that have not signed long-term agreements face large losses. At present, the Aldel aluminum plant in the Netherlands stopped production on October 11. If the government does not take measures, the suspension will continue until the beginning of next year. The Talum aluminum plant in Slovenia has stopped 24 electrolysis cells and plans to reduce its planned output next year by 50%. The Slovalco aluminum plant in Slovakia has cut production by 10% and plans to reduce production to 80% next year. If energy prices go one step higher, aluminum plants in other parts of Europe are also at risk of reducing production.

In addition, it should be noted that India, another major overseas producer of electrolytic aluminum, is facing the risk of coal shortage. India’s global output accounts for 5.59% of the world’s total. The coal inventory of the standby power plant is already at a low level. At present, some local power plants have less than one week of coal available days. If the coal supply shortage at the end of the month cannot be effectively alleviated, the local aluminum plant is facing a greater risk of reducing production.

Nickel: The main products of nickel smelting are electrolytic nickel and ferronickel, corresponding to nickel sulfide ore and laterite nickel ore from the raw material end. Nickel sulfide ore resources have been gradually reduced after years of mining, and laterite nickel ore has been used for a short time and is rich in resources, which has gradually become the mainstream.

From a global perspective, the production areas of electrolytic nickel are relatively scattered. China, Russia, Canada, Australia, Japan, and Norway account for 63% of the global output. In addition, Brazil, Finland, France, South Africa and other countries also produce electrolytic nickel, but account for Not higher. The world’s ferronickel production is mainly in China and Indonesia. In recent years, Indonesia’s NPI production capacity has expanded rapidly. In 2020, it has surpassed China to become the largest producer of ferronickel. The rapid development of Indonesia’s NPI industry is inseparable from its abundant raw material resources including nickel ore and coal.

From the perspective of energy consumption, if the nickel concentrate-electrolytic nickel production process is used for production, according to the “China Nonferrous Metals Industry Yearbook” in 2018, the comprehensive energy consumption of nickel smelting is 3369kgce/t, and the electricity consumption per ton of nickel is 11117.7 kWh. If the industrial electricity price is 0.6 yuan/kWh and the electrolytic nickel is 150,000 yuan/ton, the electricity cost in the electrolytic nickel price accounts for 4.45%. If it is produced according to the laterite nickel ore-ferronickel production process, the energy consumption per ton of high nickel pig iron product is about 4400 kWh, and the electricity cost is 2640 yuan. Calculated at 10% of the high nickel pig iron grade, the current market price is 1500 yuan per nickel, The cost of electricity accounts for 17.6% of the price of high nickel pig iron per ton of high nickel.

From the perspective of cost ratio, the energy crisis has not put much pressure on electrolytic nickel, but has a more significant impact on nickel and iron. Therefore, it can be observed from the market that in recent months, the quotation of ferronickel is stronger than that of electrolytic nickel, and the price of ferronickel is often in a state of inversion that is higher than that of electrolytic nickel.

From the perspective of the impact of the energy crisis on the balance of supply and demand, due to the severe energy shortage in Europe, the proportion of electrolytic nickel production is relatively limited, and the impact on the balance of nickel supply and demand is relatively small. Regarding ferronickel, although China has recently adopted curtailment measures to control energy consumption, resulting in a rapid decline in ferronickel production in recent months, Indonesia, as a coal exporter, has relatively sufficient energy supply and its ferronickel production capacity is in an expansion cycle. Supply tends to continue to rise. Therefore, the energy crisis may be difficult to become the logical master of nickel prices.

Zinc: According to data from ILZSG, in 2020, the global refined zinc production will be in Asia, accounting for the highest 65.94%, Europe accounting for 17.71%, Americas accounting for 13.02%, and Africa and Oceania accounting for only 3.33%. From the perspective of major producing countries, China’s refined zinc output accounts for nearly half of the global output, accounting for about 46.3%, followed by South Korea, India, Canada, Japan, Australia, Kazakhstan and other countries. As the energy consumption of hydro-zinc smelting is relatively high, and the downstream consumption is relatively concentrated, it is mainly used for the production of galvanized steel sheet. Therefore, production capacity is mostly distributed in areas where consumption is concentrated, some countries with large steel production, such as China, South Korea, India, and Japan.

The energy consumption per ton of hydrometallurgical zinc production in Europe is about 4,000 kilowatt-hours. If calculated according to the electricity price in October, the electricity cost of hydrometallurgical zinc in Europe is US$810/ton, which is close to half of the total cost. The sharp rise in electricity costs has significantly squeezed the profits of smelting companies. European smelting companies began to reduce production in early August.

In early August, the European zinc smelter Plovdiv (with an annual production capacity of 76,000 tons) stopped production for 10 days. In late September, Nyrstar’s smelter in the Netherlands, Boliden, announced a staggered production reduction. In October, Nyrstar once again announced the reduction of 50% of the zinc output of its three European smelters, affecting the total annual output of about 350,000 tons and about 2.5% of the global zinc supply. Recently, another international metal production giant Glencore said that due to the soaring energy costs, it announced that its European zinc smelters would implement peak output reductions. At present, European natural gas and coal prices are still high, and inventory levels are low. Under the influence of the La Niña climate, this winter is expected to be colder than before, and energy prices are likely to rise further. By then, more smelting companies will face pressure to reduce production.

In addition, it should be noted that, with the exception of China in Asia, South Korea, Japan and India account for 15.32% of the global output. Japan and South Korea, as countries that are highly dependent on energy imports, are also affected by soaring energy prices. India is currently facing a shortage of coal resources. If energy prices continue to rise in winter, pressure to reduce production will be passed on to parts of Asia.

Lead: According to data from ILZSG, in 2020, the Asia region accounted for 63.91% of the global refined lead production, followed by the Americas with 17.61, Europe with 16.13%, and Africa and Oceania with only 2.35% of the total. From the perspective of major producing countries, China has the most refined lead production, accounting for 41.72% of the world’s total. Followed by the United States, accounting for 9.57% of the world. Then came India, South Korea, Mexico, Germany and other countries. As lead smelting energy costs are low, and raw material costs account for a relatively high proportion, the production capacity is mainly distributed in lead ore resource countries and some major consumer countries.

Compared with other non-ferrous metals, the energy consumption of lead smelting is lower than that of other non-ferrous metals. According to the advanced value of 355kgce/t for nickel smelting in the “China Nonferrous Metals Industry Yearbook” in 2014, the energy consumption per ton of lead smelting is about 1065 kWh. Electricity costs in lead smelting account for more than 30% of cash costs. The rise in overseas coal and natural gas prices will push up smelting costs. However, when calculating the full cost of primary lead, the benefits of by-products such as silver and sulfuric acid will also be considered. At the same time, the current proportion of recycled lead production exceeds that of primary lead, and the energy consumption is lower. Therefore, compared with other high-energy-consuming varieties, the impact of rising energy prices on the supply of primary lead is relatively small.