Energy

LMEWEEK Power crunch hits Europe's silicon and zinc supplies for renewables

3 minute read

High-voltage power lines and electricity pylons pictured near Berlin, November 7, 2006. REUTERS/Pawel Kopczynski

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  • Power costs in zinc production rise to $1,200-$1,400/T
  • Silicon prices highest on record
  • Zinc prices highest since 2007

LONDON, Oct 15 (Reuters) - Silicon and zinc output cuts in Europe due to the power crisis are likely to slow the region's energy transition plans, with producers also weighing relocation of facilities for both the metals used in renewable energy, metal industry sources said.

European power prices have rocketed this year mainly due to the rising price of natural gas used for power generation and heating, low renewable energy output and higher carbon prices. read more

German baseload power for delivery next year recently reached a contract record of 177.24 euros per megawatt hour (MWh), while oil prices climbed to three-year highs around $85 a barrel as consumers switched fuels.

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"The outlook for the future is very poor and ultimately our production could be replaced by Chinese output," Germany's RW Silicum told Reuters.

CRU analyst Jorn de Linde estimates Europe typically accounts for 13% to 15% of global silicon production estimated at around 3 million tonnes this year.

Silicon prices in Europe have doubled over the past year to above $4,000 a tonne, the highest on record due to surging demand from the solar sector where the semiconductor material is used to make solar cells. read more

Zinc, meanwhile, is used in offshore wind masts to prevent corrosion, while solar panels use support structures made from steel galvanised with zinc.

Sources said the power component of zinc production costs has sometime jumped to between $1,200 and $1,400 a tonne from a typical $200 a tonne before the power crisis started.

"Europe is aiming for carbon neutrality, but that can't be achieved without secure supplies of metals needed for renewable energy," a source at a European zinc smelter said

Miner and commodity trader Glencore (GLEN.L) produced 787,200 tonnes of zinc last year in Europe.

Global zinc production is estimated at around 14 million tonnes this year, with about half of that expected to come from China, the world's largest producer.

"Glencore is monitoring the situation across its European zinc smelters and adjusting production to reduce exposure to peak price periods during the day," Glencore said, adding it was evaluating options to deal more broadly with the power crisis.

Belgium's Nyrstar said this week that it would cut production by up to 50% at its three European smelters due to the soaring price of electricity.

The news helped push zinc to above $3,900 a tonne, the highest in more than 14 years.

Non-ferrous metals industry association Eurometaux recently said the power crisis could lead to metal producers moving operations away from Europe.

For European metal producers a major part of the problem is the inability to agree long term power contracts in Bulgaria, Spain, Italy and the Netherlands, said Cillian O'Donoghue, Director, Energy & Climate Change at Eurometaux.

This is because forward power markets in those countries are illiquid, leaving producers fully exposed to the spot market, O'Donoghue said.

(This story was refiled to add dropped word in paragraph 8)

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Reporting by Pratima Desai; additional reporting by Michael Hogan; editing by Veronica Brown and Kirsten Donovan

Our Standards: The Thomson Reuters Trust Principles.

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