Norsk Hydro may shut aluminium plant in Slovakia without CO2 compensation

May 24 (Reuters) - Norsk Hydro may have to close its majority-owned primary aluminium plant in Slovakia unless the government there provides financial help through the carbon compensation scheme, the Norwegian company told Reuters.

Analysts estimate European aluminium smelters have cut an annualised 800,000 to 900,000 tonnes of output in recent months due to record high power prices. This has exacerbated deficits in the region and pushed up prices for consumers in the transport, packaging and construction industries.

The Slovalco plant, 55.3% owned by Norsk Hydro and 44.7% by Penta Investments Group, with capacity to produce 175,000 tonnes a year of aluminium is already operating only at 60% capacity of 105,000 tonnes.

“When Slovalco’s power contract expires at the end of the year, keeping aluminium production going at Slovalco will become much more challenging,” said Norsk Hydro spokesman Halvor Molland.

“Many countries, including Germany, Norway and Netherlands have chosen to support aluminium producers with carbon compensation. Slovakia hasn’t.”

Slovalco supplies 50% of all aluminium consumed in Slovakia and employs 500 people, Molland said.

In countries such as Germany, the CO2 compensation for a smelter producing 200,000 tonnes a year will be about 67.55 million euros ($72.54 million) this year, according to Norsk Hydro.

The CO2 compensation scheme approved by the European Union allows national governments to award compensation to energy intensive industries such as aluminium smelting to help them recoup some of the costs relating to high carbon prices that they need to pay due to the Emissions Trading System (ETS).

“The new bill on (carbon) allowances trading is still in the legislative process,” Slovakia’s Environment Ministry said in response to a request for comment.

“The Environment Ministry is aware of Slovalco’s importance for the region, the ministry and the government have been helping the company. Slovalco received more than 21 million euros in 2016-2020 as a compensation - 51.6% of the overall compensation paid.”

Consumers buying aluminium on the physical spot market pay the LME benchmark aluminium price, which hit a record above $4,000 a tonne in March, plus a duty-paid physical market premium, which is at an all-time high of $615 a tonne in Europe. ($1 = 0.9312 euros) (Reporting by Pratima Desai in London and Robert Muller in Prague; editing by Susan Fenton)