European prices for gas, aluminum, & CO2 have slumped back to 1Q21 levels
February 19, 2024
Key Observations:
In autumn 2021, Russia's aggression led TTF gas prices to more than double in fourteen weeks. There were also fears that war would interrupt the flow of primary aluminum supply from Russia, the world's third largest producer. These twin fears spurred cost-push inflation from gas into aluminum prices, which breached $3,000 in mid-October 2021.
Fear of assault tragically soon became reality. By 4-Mar-2022, the TTF gas price doubled again, propelling cash aluminum prices to nearly $3,900. This progression is visible in the chart as the motion from (0) to (1) to (2).
However, Russian aluminum output and deliveries stayed intact. This twist put higher-cost EU aluminum smelting in frame as expendable (22)-(29). Gas priced, in part, to force lower aluminum output in Western and Central Europe: –17% since Dec-2021, says the IAI.
Meanwhile, carbon prices halved on slumping factory capacity utilization in the largest EU nations and in those most vulnerable to Russian attack. Germany: 85.2% to 80.8%. Poland: 79.7% to 76.4%. Finland: 82.5% to 72.7%. Latvia: 77.1% to 70.4%. Lithuania: 79.4% to 70.0%. Estonia: 86.3% to 62.9%.
Source: Bloomberg, ICE, LME, Blacklight Research. Note: numbers in parentheses count weeks since Russia's 24-Feb-2022 invasion of Ukraine, with '0' marking the week before the invasion and '1' marking the week in which the invasion occurred. In the latest week (#104), average prices are €24.65 for gas, $2199 for aluminum, and €55.45 for CO2. Since Russia's invasion of Ukraine, these prices rank the 1st, 24th, and 0th percentiles, respectively. In other words, gas and CO2 are on the lows. In the pre-war interval color-coded orange in the chart, these prices rank in the 82nd, 73rd, and 95th percentiles, respectively. However, today's prices are more or less where these prices stood in late 1Q2021. This is a key juncture for risk.
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