EU in talks with China to avoid “catastrophic” magnesium crunch

Volkswagen plant in the 1960’s. (Image courtesy of Roger W. |Flickr Commons.)

European leaders, worried about the effect a global shortage of magnesium will have on the European Union’s industrial recovery from the pandemic, have open talks with China, which supplies the block with about 95% of the silvery-white metal used to make aluminum. 

Local companies, including Norway’s Norsk Hydro, have stopped producing magnesium because they were unable to compete with lower costs at Chinese producers. 

That would not have been a problem should Beijing not have recently ordered roughly 35 of its 50 magnesium smelters to close until the end of the year to conserve power supplies. This means current European inventories will be exhausted by the end of November, Germany’s association of metals producers WVM warned on Tuesday.

Magnesium is used for a range of products, especially aluminum alloys, which are used in several auto-parts from gearboxes and steering columns to seat frames and fuel tank covers. 

German Chancellor Angela Merkel and Czech Prime Minister Andrej Babiš, leaders of the continent’s top automaking countries — raised the issue on Thursday during an EU leaders’ summit. The European Commission followed suit by opening a dialogue with China. 

“We are raising this issue with our Chinese counterparts in order to address immediate shortages and are assessing long-term solutions to tackle this strategic dependency,” a Commission spokesperson acknowledged in an email to Reuters. 

As the metal is difficult to store — it starts to oxidize after three months — global stocks could run critically low before the end of the year if Beijing doesn’t restart production in the next few weeks. 

“This issue, if not resolved, threatens thousands of businesses across Europe, their entire supply chains and the millions of jobs that rely on them,” a dozen industry groups, including metal producers, auto suppliers and the packaging sector said in a joint statement Friday

“The consequences would be catastrophic,” they said. 

Record prices 

Undersupply has pushed prices to record highs, currently trading at $4,700 per tonne. That’s more than double the price early this year and the highest since 2008. 

In Europe, remaining stocks are going for $10,000-$14,000 a tonne, up from $2,000 per tonne earlier this year, the industry groups said. 

The problem has already reached North America. Canada’s Matalco Inc., which produces aluminum billet, told its clients last week that magnesium availability had “dried up”, and if the scarcity persisted it would have to curtail output and ration deliveries as soon as next year