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Aluminium investment held back by energy tariffs, industry leaders warn

Aluminium Federation (ALFED) : 18 January, 2014  (Special Report)
Investment in Britain’s aluminium sector is being held back by the high cost of energy in the country. This was one of the messages delivered to Business and Energy Minister Michael Fallon at a meeting with aluminium industry leaders.
Since 2010, 87% of primary aluminium production in Britain has been lost, whilst demand for the metal is forecast to double from 40 million tonnes per year to 80m tonnes by 2025. If punitive energy taxes remain in place, the country will be unable to compete globally and share in the benefits of this growth, say members of the Aluminium Federation (ALFED).
UK legislation - the Climate Change Levy, Carbon Reduction Commitment, Carbon Price Floor and Renewables Obligation – is significantly higher than green taxes in other EU member states and has damaged Britain’s competitiveness even further. A string of tax increases and new regulations over the past few years - both domestic and European - have put the aluminium industry in Britain at a serious cost disadvantage when compared against emerging economies such as China and India, as well as with other European member states.
ALFED told Minister for Business and Energy Michael Fallon at a meeting in Whitehall on Monday (January 13) that soaring green taxes were standing in the way of investment-led growth. If Britain and the European Union remain wedded to high taxes on energy, then manufacturers and suppliers will look to other economies in which to base production operations. 
Speaking after the meeting, ALFED CEO Will Savage said: “It is hard to believe that the UK’s aluminium industry is prevented from taking full advantage of this huge demand for aluminium products by excessive regulatory cost burdens. But we know from talking to our members that decisions about investment are being made against Britain’s uncompetitive tax framework.”
Savage added that ALFED is scheduled to meet with Mr Fallon again in six months, to give further updates on aluminium industry trends. “The establishment of this dialogue will hopefully prove useful to the industry, as more than ever we need to have the ear of Government,” he said. Savage was joined at the meeting by David Ian Jones, works director with Rio Tinto Alcan in Fort William, Dr Gerd Goetz, director general of the European Aluminium Association, and Simon MacVicker, president of ALFED and Managing Director of Bridgnorth Aluminium. Goetz highlighted the results of a European Commission-funded report on the effects of EU policy and legislation on the aluminium industry.
The study provides strong evidence that EU legislation has created a significant cost disadvantage amounting up to EUR228 per tonne of final product. This is equivalent to 11% of the total production cost (including raw materials), leading to a dramatic collapse in EU-based production since 2008.
ALFED will also be joined in the meeting by the European Aluminium Association, whose representatives will highlight the results of a European Commission-funded report on the effects of EU policy and legislation on the aluminium industry.
MacVicker, who is also managing director of Bridgnorth Aluminium in Shropshire, said: “The imposition of one environmental tax after another has created a situation in which the UK aluminium industry is struggling to compete internationally, and as a result of this, thousands of jobs have gone abroad as investment and buyers have been attracted to these cheaper markets.”
“What we need the British Government to do is cut the domestic energy taxation that puts us at a disadvantage to our European partners and ‘bang the drum’ in Europe for the re-industrialisation agenda, so that we once again become globally competitive.”
“Energy taxation is the one thing that’s really set us back as an industry. It hasn’t achieved anything for the environment, because it has merely shifted production to another part of the planet, where often the energy efficiency and greenhouse gases from electricity generation are far worse than Europe.”
MacVicker added: “As representatives of the aluminium industry we want to see more of the things we buy in the UK made in the UK, and this would really benefit employment and GDP. That means reducing the energy tax burden in order to give us a level playing field to compete on the world stage again.”
Goetz, director general of the European Aluminium Association, said: “We need concrete proposals to reverse current negative trends and stop deindustrialisation. We are calling upon decision-makers in all European countries to align EU industrial, energy and climate policies. Reaching climate and environmental goals will be pointless if the result is to sacrifice an industry that – in addition to generating wealth and jobs - is crucial to achieve the transition to a low-carbon and resource-efficient society.
“Demand for aluminium, and the innovative and resource efficient solutions the metal provides, is growing in Europe and worldwide. It is a political choice to maintain or not such a forward-looking industry in Europe or not.”
ALFED’s key messages to the Government were:
  • The UK Government should support the re-industrialisation agenda for Europe at the forthcoming European Council meeting in March, by addressing the negative impact of EU policies, and by agreeing a reduction of regulatory and energy costs and other taxation which makes the European aluminium industry uncompetitive globally
  • The UK Government should support the British aluminium industry by cutting domestic energy taxation
The meeting with Mr Fallon comes at a crucial time, as the European Commission is currently reviewing industrial strategy and has indicated its intention to reverse the decline in manufacturing’s share of European GDP.
China's extra power fees for aluminium smelters not likely to boost prices
Meanwhile, China's additional power tariffs aimed at energy-hungry aluminium smelters are not likely to boost prices for the metal as enough new capacity is coming on line to replace any plants forced to close due to the increase in costs. About 4.5 million tonnes of aluminium smelting capacity may come onstream in China this year, according to SMM analyst Zhang Chenguang.
Top aluminium producer and consumer China imposed extra power tariffs this month on smelters using more than 13,700 kilowatts (KWs) for each tonne processed, part of a scheme to close inefficient plants and rein in overcapacity.
The additional power fees could raise costs by as much as 1,100 yuan ($180) per tonne for some smelters. Around 1.7 million tonnes of aluminium smelting capacity would be liable for the higher tariffs, according to Shanghai-based industrial metals information provider SMM.
That would account for around 7.2 percent of China's operating capacity of near 23.5 million tonnes based on the official production figures for November 2013.
Officials at aluminium smelters, though, said capacity that paid the extra fees could be less than 1 million tonnes because many would adjust to use less than 13,700kW/tonne.
"Smelters can cut the electricity use by just cleaning their smelting pots more often," said an administration manager at a large smelter. Electricity accounts for about 40 percent of production costs for smelters in China.
An official at Henan Nonferrous Metals Industry Association said the new fees would not boost production costs to most smelters in Henan. About 70% of the 3.8 million tonnes of capacity in China's largest aluminium producing province relied on in-house power plants. In the power cost scheme that came into effect this month, aluminium smelters that use 13,700-13,800kW/tonne to produce one tonne of liquid primary aluminium will be charged an extra 0.02 yuan per kW. Smelters that use more than 13,800kW/tonne in liquid form will be charged an extra 0.08 yuan per kW.
China in July last year also required for production of the liquid form of aluminium that new and upgraded capacity use less than 12,750kW/tonne, and that existing smelters reduce power use to less than 13,350kW/tonne by end-2015.
And in Australia, three years of price pain and hindrances bedevilling Australian manufacturing is said to have brought the aluminium smelting industry to its knees. And barring a collapse in the exchange rate or an equally unexpected surge in prices for the light metal, smelter after smelter is tipped to fall by the wayside.
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