Europe: Over the last two years, European Aluminium production capacity has been cut in half due to skyrocketing power prices and depleted margins across all but the most efficient producers. Despite power prices coming down again, and a significant amount of capacity removed, Aluminium prices have not yet recovered from their steep decline that began about one year ago.

Since late 2021, approximately 1 million tons of capacity has been eliminated from European smelters due to high electricity costs. In some cases, monthly wholesale electric prices reached levels 10 times higher than those seen two years prior.

Last year, Germany saw an extraordinary surge in power prices - up to almost €470/MWh in August, from €47/MWh in March 2021. Similarly, France saw a leap in prices to €493/MWh from €50/MWh and Italy experienced a hike to €543/MWh from €60/MWh.

However, the trend reversed itself as quickly as it began. By September, German prices dropped by 71.1%, settling at €136/MWh in January. French and Italian prices followed suit with 73.2% and 67% dips respectively.

France's Aluminium Dunkerque restarted its idled capacity in January, potentially indicating that Europe's other Aluminium producers will do the same in the wake of a more advantageous energy market. Natural gas futures on the Dutch TTF exchange dropped below €50/MWh in February, which is less than half of what it was at its peak at €345/MWh back in August 2020.

Aluminium capacity cuts in Europe have continued unabated this month. Germany's Speira announced that its Rheinwerk smelter in Neuss will be fully closed due to high energy costs, while Slovenian producer Talum revealed plans for the cessation of operations at their Kidricevo smelter in Slovenia.

Despite prices of power falling, producer margins have still not been able to improve significantly. On a global scale, Aluminium prices remain up to three times higher than what they were two years ago.

Significant highs when it peaked at over $3,950/t in March last year, following the invasion of Ukraine by Russia in February. Unfortunately, prices soon fell to just over $2,100/t by September and have so far failed to recover by much this year after reaching January highs of around $2,660/t - which translates into an overall 15% drop from the previous peak.

Global Aluminium production has surged in 2021 despite power shortages prompting cuts to Aluminium capacity in Yunnan province, China. Global output reached 5.27 million tonnes in February this year - an increase of 2.69 percent when compared to the same period last year.

China's share of Aluminium production continues to grow, reaching 3.11 million tonnes in February 2021 - a growth of 4.26 percent year-on-year and bringing the country's total output to 40.21 million tonnes so far this year.

It appears that the latest production cuts to Europe's Aluminium industry extend beyond power prices. Speira, which was formed in 2020 from Norwegian Aluminium producer Norsk Hydro's former rolling business, has been transitioning to a pure Aluminium rolling and recycling company. Similarly, Talum's smelter is only operating at 20% capacity due to earlier reductions in output - indicating higher power prices may not be the deciding factor. The shift eastwards seem to hint at an underlying structural change for Aluminium production.

The European Aluminium market could have seen a price hike due to an improvement in demand, but this could be avoided by consumers if they take advantage of new, lower-cost production from other locations. This shift is being accelerated by the current power crisis, which makes it unlikely that any of the curtailed smelting capacity will be restarted due to the high costs associated with doing so.