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Ag Metal Miner

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Glencore Slows Zinc Smelting As Energy Prices Sting

  • Glencore is planning on curbing zinc smelting at its Nordenham plant. 
  • The shutdown is yet another blow to European metal manufacturing, which has seen a wave of shutdowns amid the ongoing energy crisis.
  • Zinc’s production process is one of the most energy-intensive in base metals.

Via AG Metal Miner

Glencore plans to place the zinc smelting line at its Nordenham plant in northern Germany on care and maintenance starting November 1. This represents yet another major blow to European metal manufacturing, which continues to see shutdowns amid the continent-wide energy crisis.

In an October 5 memo, the London and Johannesburg-listed company’s supervisory board chairman, Koen Demesmaeker stated that “the cessation of production is a reaction to various external factors affecting the business and wider European industry.”  Demesmaeker also noted that the stoppage would remain in place until Europe’s macroeconomic conditions improve. That said, a Glencore group spokesperson did tell MetalMiner that lead smelting at the site will continue as before.

Nordenham is in Germany’s Lower Saxony state, near its border with The Netherlands. The site can produce 164,000 metric tons per year of zinc and zinc alloys and up to 105,000 metric tons of lead. Glencore’s planned stoppage comes about one year after high energy prices prompted the company to put another smelter on care and maintenance. That time, it was the Portovesme zinc smelter located on the Italian island of Sardinia. Portovesme can produce around 100,000 metric tons per year of finished zinc.

Metal Manufacturing and Energy Prices Continue to Collide

Zinc’s production process is one of the most energy-intensive in base metals. Unfortunately, European energy prices have reached unprecedented highs due to Russia’s February invasion of Ukraine.

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Sanctions imposed by the United Kingdom and the EU have since prompted Russia to limit and even cut gas flows to Europe. Before the war, Europe received up to 40% of its energy supplies from Russian sources.

Benchmark Dutch TTF was €173.69 ($169.57) per kilowatt hour on Oct. 5. This represents a rise of 11.74% from €161.95 ($157.65). On the other hand, zinc’s 3-month closing price jumped 2.51% on the same day. The Oct. 6 price was $3,120.50 per metric ton on Oct. 6, a jump from $3,044 the day before.

According to one analyst, Glencore’s plans to put Nordenham on maintenance and care did not cause the price jump. However, reduced availability is likely to further raise European premia on the base metal. Right now, the premium averages $500 per ton. According to the analyst, that number is up more than twofold from $150 at this time in late 2021.

Looking at metal manufacturing as a whole, zinc will likely have better insulation from the sharp economic slowdown Europeans expect. After all, as we enter winter, people will mostly be focused on paying their costs rather than acquiring new automobiles.

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LME Bans Russian Metal Manufacturing Company UGMK

Besides Nordenham going off stream, metal manufacturing faces plenty of other issues. For instance, the LME has banned the warranting of zinc and copper from vertically-integrated Russian producer Ural Mining and Metallurgical Company (UGMK). The ban also applies to its subsidiary, Chelyabinsk Zinc.

Related: European Energy Market Spooked By $1.5 Trillion Liquidity Crisis

The bourse’s special committee reached its decision on the ban shortly after Sept. 26. That was when the UK government added UGMK’s president and main shareholder, Iskander Makhmudov, to the list of sanctioned individuals. The LME later stated, “in accordance with UK sanctions law, asset freeze measures extend to entities which are owned or controlled, directly or indirectly, by a person subject to sanctions.”

The UK claims Makhmudov has benefited from the Russian government or supported it through owning and controlling, either directly or indirectly, UGMK. The UK government added that the business is in the extractives sector, which is strategically important to Russia. Currently, Makhmudov holds over 50% of the UGMK. The company’s headquarters is in Russia’s Sverdlovsk region, which is considered the political border between Europe and Asia.

The UGMK Bad Represents a Significant Loss

According to information on UGMK’s website, the company smelts zinc concentrates at its Chelyabinsk Zinc plant. On top of that, the site is working to raise its capacity to 200,000 metric tons. It also smelts copper concentrate at three sites, two of which are in the Sverdlovsk region and one of which is in Orenburg. It’s worth noting that the Sredneuralsk smelter is UGMK’s largest. The group noted that it can produce 150,000 metric tons per year of blister copper.

The bourse noted that it could only place Chelyabinsk-branded zinc or UGMK-branded copper on warrant if the owner can demonstrate to the LME’s satisfaction that it does not constitute a breach of sanctions. “The LME will continue to engage with stakeholders and keep the decision of the Special Committee in respect of UMMC and Chelyabinsk branded metal under review,” the bourse added.

By AG Metal Miner

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