Aluminum smelter struggles to survive amid Europe’s gas crisis

The survival of hundreds of German foundries, most of which are small and medium-sized companies with less than 250 employees, will mean cost reductions and difficult discussions with customers

SOLTAU, Germany — Shouting above the clank of machinery, Gerd Roeders is reluctantly preparing for the temporary shutdown of his German aluminum smelter to survive Europe’s growing gas shortage.

Roeders hopes that by moving the 200-year-old factory to three weeks of 24-hour shifts followed by a week-long shutdown, he can maintain production while reducing gas consumption.

Its bill has already more than doubled this year compared to last, he said, fearing it could triple or even quadruple in 2023.

The plan will save the cost of gas needed to light the ovens every morning, Roeders calculates, even if it means paying more staff at family business GA Roeders to work night shifts.

The survival of GA Roeders GmbH and the other 600 German foundries, most of which are small and medium-sized companies with less than 250 employees, will mean cost reductions and difficult discussions with customers.

“We lay out our prices to customers and tell them they have to pay more,” Roeders, 59, told Reuters as workers prepared the factory for the first week of rest. “We can’t deliver coins if we invest and get nothing back.”

GA Roeders, with factories in Germany and the Czech Republic employing around 500 people, produces over 1,000 pieces. It serves car manufacturers like Volkswagen and Continental, airline manufacturers and medical technology companies, generating annual revenues of 60 million euros.

While foundry contracts usually include a clause allowing them to charge more when the cost of metal increases, such a clause does not exist for energy.

Roeders said he always sought to be energy efficient – the company’s second largest expense after staff – a habit he learned from his father who turned off the computers in the office at night and turned off the lights during the lunch breaks.

But the firm is now facing unprecedented increases.

The price of the first-month Dutch TTF gas contract, the benchmark for Europe, has almost tripled since the start of the year due to the slowdown in Russian gas deliveries via Nord Stream 1 and a tight global market.

And while the company still has a 30,000-litre tank on site, which hasn’t been used in years, reusing it would be a step backwards, Roeders said.

Germany’s energy regulator is advocating for businesses, government and consumers to reduce their gas usage and has asked the biggest companies to submit contingency plans to further reduce winter usage.

Still, chief executives of German automakers including Mercedes-Benz and Volkswagen have warned in recent weeks that maintaining production levels under contingency plans will only work if their suppliers can keep delivering parts.

Producers of the aluminum, steel and glass essential to making cars are even more dependent on natural gas than the automakers themselves, raising fears of a ripple effect on their global customer base if they are forced to stop production.

German auto component makers sell to more than 3,000 direct customers in the United States, Europe and Japan, with their products reaching more than 100,000 second-tier customers, estimates supply chain analytics firm Interos. .

‘Dress warmly’

The energy crisis is the latest in a series of upheavals, from slashing carbon emissions and supply chain bottlenecks to tougher due diligence laws, which small businesses say are struggling to overcome without further support.

“The conversion to electric units requires a massive renovation and is at best possible in the medium term,” said a spokesperson for the German Foundry Association.

“No technology other than gas engine ignition is currently available,” the spokesperson added.

Working with an alliance of other aluminum manufacturers and a university, GA Roeders received government funding to design a prototype smelter that could operate on a mixture of 30% to 40% hydrogen and 60% at 70% gas.

The objective is to eventually run exclusively on hydrogen.

Interest in the project has grown since Russia’s invasion of Ukraine, Roeders said, but there are still many hurdles before it becomes operational – from scaling up the technology to the establishment of a hydrogen charging network.

“To industrialize something like this usually takes at least five years,” he said. “We’ll have to dress warmly, we won’t have a hydrogen oven yet.” – Rappler.com

$1 = 0.9794 euros

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