Power Crisis Spreads as Large Dutch Zinc Factory Cuts Production

(Bloomberg) -- Nyrstar is curtailing production at a major zinc smelter in the Netherlands during peak times due to soaring electricity costs, the latest signal of how Europe’s energy crisis is spreading through the region’s biggest industries. 

The zinc producer is dialling back output at the plant in Budel-Dorplein after seeing a fourfold rise in power prices over the past year, said Henk Leendertse, the general manager at the smelter.  

The spike in electricity costs has far exceeded a rebound in industrial metals markets over the past year, pushing some producers into the red even as metal prices trade near multiyear highs. Zinc prices were up 2.1% at $3,089.50 a ton by 4:38 p.m. in London after the news. 

“We have hedged a certain share of our electricity consumption, and that helps, but it’s only a matter of time,” he said. “If we want to hedge for next year, prices are already sky high, so it only delays the impact.”

The plant was operating close to its capacity of about 300,000 tons-per-year prior to the cutbacks, he said, while declining to quantify the impact of the curtailments, Leendertse said. 

Nyrstar, owned by global commodities trading house Trafigura, runs three smelters in Europe, as well as operations in Australia and the U.S. Its plants in France and Belgium are operating as normal, as power costs are lower there, Leendertse said.

Budel-Dorplein, near the border with Belgium, accounts for 1% of electricity consumption in the Netherlands, using about 3.8 megawatt-hours of power to produce a ton of zinc. Nyrstar is in discussions with the Dutch government about potential support. However, the plant is in a disadvantaged position relative to other smelters because the country has yet to confirm that it will continue to offer emissions-linked compensation available elsewhere in the European Union.

“The plant is fully electrified and can be flexible in power consumption, which helps to stabilize the grid,” Leendertse said. 

The surge in gas and power prices has lent support to industrial metals prices in recent days, as previously bumper production margins in markets like aluminum suddenly come under strain.

“Rising power prices in Europe (and China) are nowhere near a solution for this winter,” Michael Cuoco, head of hedge-fund sales for metals and bulk materials at StoneX Group, said by email. “Next question: when will the downstream buyers realize zinc at the current level is actually cheap?”

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