A sector under pressure

Once a cornerstone of European manufacturing, from cars to aircraft, the aluminum sector today faces a complex mix of decarbonization costs, energy and raw material dependence and shifting global demand. At the same time, the European Commission’s recent push to seal trade deals with Asian partners—notably Indonesia and a fast-tracked EU–India process—and its move to curb recycled aluminum exports are reshaping the strategic landscape.

Concerns galore

European Aluminium; the European Steel Association, or Eurofer; Cerame-Uni, the European ceramic industry association; and EuROALLIAGES, the association of European ferro-alloy producers, have raised serious concerns in a joint statement about the potential impact of the EU-India Free Trade Agreement (FTA) on strategic European industries. The Brussels-based groups stress that without a sector-specific framework accounting for their challenges, the agreement negatively could affect competitiveness.

Further, the statement says that India, supported by low-cost access to abundant raw materials, government assistance and export-driven industrial policies, is rapidly expanding its manufacturing capacity. This growth is adding to existing global overcapacity, with surplus production likely to be channeled to overseas markets, including Europe. At the same time, vast differences persist between EU and Indian labor, environmental and climate regulations, creating the potential for additional competitive imbalances.

Finalizing an agreement without adequate protections for sectors vulnerable to unfair competition—or without addressing these regulatory disparities—could expose European industries to significant market distortions and threaten their long-term sustainability in the European market.

Along with India, other Asian producers, such as Indonesia, Malaysia and the United Arab Emirates, are scaling up aluminum capacity at a pace that far exceeds European output. In a position paper published in late November of last year, European Aluminium also outlined how government-backed industrial strategies across these countries, like India’s Aluminium Vision 2025, Indonesia’s state-driven smelting expansion, the UAE’s state-owned aluminum giants and Malaysia’s downstream ambitions, could lead to entrenched overcapacity heavily supported by subsidies, cheap energy and state-owned enterprises.

At the same time, gaps between EU and partner-country standards on labor rights, environmental safeguards and carbon intensity create further distortions, increasing the vulnerability of energy-intensive European industries.

The association warns that removing tariffs on aluminum under ongoing FTAs would expose the entire European value chain to unfair competition from primary smelters to recyclers. Aluminum has been recognized formally as a strategic raw material under the EU’s Critical Raw Materials Act, making a stable domestic supply base essential for Europe’s green and digital transitions. The industry argues that imports of this metal would run counter to climate objectives, undermine the Carbon Border Adjustment Mechanism’s effectiveness and accelerate carbon leakage.

The association also is concerned about the growing phenomenon of what it calls “scrap leakage,” where large volumes of European recyclables are exported to Asia rather than entering Europe’s recycling loop, thereby weakening the circular economy.

Speaking at the European Aluminium Summit 2025, Trade and Economic Security Commissioner Maroš Šefčovič highlighted aluminum recycling as a pillar of Europe’s green transition. Because secondary aluminum uses far less energy and emits significantly less CO2 than primary production, he said, steady access to recycled metal is essential to the EU’s decarbonization pathway.

Šefčovič warned that growing scrap leakage, driven by global demand shifts and market distortions, is jeopardizing Europe’s circular economy goals.

The challenge has intensified recently. The United States’ move to raise Section 232 tariffs to 50 percent while leaving recycled aluminum untaxed has created a profitable gap, drawing more European scrap to U.S. buyers. Strong demand from Asia is adding further pressure.

Šefčovič suggested about 15 percent of EU recycling furnace capacity is idle due to a lack of the raw material, disrupting current operations and eroding confidence in future investment.

The Bureau of International Recycling (BIR), however, warns that export restrictions on recycled aluminum by early this year and potential similar steps for copper in the EU’s newly released Economic Security Doctrine and the accompanying ResourceEU Action Plan risk creating market distortions that ultimately could weaken Europe’s circular economy.

The Action Plan lays out several structural shifts, including increased obligations on recycled-content declarations, streamlined intra-EU waste shipment procedures and the establishment of a European Critical Raw Materials Center coupled with a coordinated stockpiling program. These initiatives, which are aimed at securing sustainable material flows, also signal deeper EU oversight of waste and scrap markets.

The Brussels-based BIR argues that an effective policy must remain transparent, proportional and data-driven while accounting for real global trade flows. Premature or overly restrictive export controls, it continues, could suppress competition, disrupt existing circular trade routes and undermine the efficient allocation of secondary raw materials across global markets.

With recyclers already navigating volatile demand and shifting tariff landscapes, industry representatives stress the need for predictable, evidence-based trade frameworks to avoid unintended consequences—especially at a moment when aluminum recyclers in Europe already are facing feedstock shortages and idle capacity.

A stressed aluminum industry

Over the past five years, Europe’s primary aluminum sector has undergone a marked contraction, shedding more than 1 million tons of annual smelting capacity as high energy prices, volatile electricity markets and regulatory cost pressures eroded competitiveness across the region.

Slvakia’s Slovalco, with roughly 175,000 tons of nameplate capacity, was the first major casualty, shutting its electrolysis operations in 2022 after the lack of adequate compensation for indirect carbon costs made continued production financially untenable.

Similarly, this year, the Alcoa-owned San Ciprián complex was affected by a widespread power outage across Spain.

“We have reviewed the Spanish government’s report on the circumstances that caused the power outage and the planned measures and investments aimed at providing improved grid resilience,” Rob Bear, vice president, Spain, at Alcoa says in a statement. “We have also met with national and regional government representatives and received assurances they will continue to promote measures to provide reliable and competitive energy. Based on these factors and the government’s recent public statements, the joint venture has decided to resume the restart of the smelter.”

The joint venture estimates the restart will be completed by the middle of this year. The company also revised its prior estimates and expects to record a net loss (pretax and noncontrolling interest) for the smelter of nearly $90-$110 million in 2025, and to use roughly $110-$130 million in cash from operations for the smelter. The unfavorable change from prior estimates is due to a delay in completing the restart and the related revenue being recognized in 2026 rather than 2025.

Slovenia’s Talum scaled back nearly 80 percent of its output in 2022 before shutting its electrolysis lines in 2023, removing around 60,000 tons of capacity. Norsk Hydro also undertook substantial reductions at its Norwegian smelters in Karmøy and Husnes, collectively idling an estimated 110,000-130,000 tons because of deteriorating market conditions and escalating power and carbon compliance costs. In 2022, Romania’s Alro Slatina reduced primary output by about 60 percent, effectively sidelining roughly 159,000 tons of smelting capacity, while its sister alumina refinery in Tulcea ceased operations amid gas price spikes. Even long-standing producers such as Aluminium of Greece faced temporary energy-driven disruptions.

In Germany, Europe’s largest economy, Speira exited primary aluminum entirely in 2023, closing the remaining 70,000 tons of its Neuss smelter after previous curtailments during the 2022 energy crisis. Aluminum output in the country remains on a downward trajectory, currently at about 76.5-87 percent of 2021 levels, according to Aluminium Deutschland (AD).

Production of extruded and rolled products has fallen markedly year-on-year, even as recycling shows a modest uptick. A survey by AD indicates growing pressure within the industry: 28 percent of firms have initiated or are planning workforce reductions, and a further 13 percent are considering shifting production to overseas locations.

“The situation in the aluminum industry is dire,” AD President Rob van Gils says in a statement.

“To survive, companies must restructure: capacity reductions, relocations and job cuts cannot be ruled out. Well-paid industrial jobs are at stake. If policymakers do not take action to strengthen the industry, it will also lead to a loss of prosperity in Germany.”

Collectively, these cases illustrate a structural weakening of a European primary aluminum base, one driven not by cyclical fluctuations but by systemic cost disadvantages relative to state-supported and lower-carbon-constrained competitors outside the EU.

Mayuri Phadnis is Europe editor at Davis Index and can be reached at mayuri.phadnis@davisindex.com.