(Bloomberg) -- Zinc prices rose as much as 4% in London after Nyrstar said it will place a key plant in the Netherlands on care and maintenance due to high energy costs and weakening market conditions.

Production at the Budel zinc smelter will be suspended in January until further notice because the operation is not currently economically viable, the Trafigura Group-owned company said in a statement. Production at the plant was curtailed as energy prices spiked in 2021, and it remains at a significant disadvantage to similar operations in Europe due to the Dutch government’s “discontinuation of support measures for energy-intensive industries,” it said.

The shutdown underscores how crucial government support is for Europe’s energy-intensive industrial firms, even after a steep decline in gas and power prices over the past two years. Europe lost about half of its zinc and aluminum smelting capacity during the energy crisis, and the industry has warned that long-term financial support is needed to prevent further deindustrialization and help the region keep control of raw materials that are critical to the green-energy transition.

While energy costs have retreated in recent months, European smelters have also faced a sharp decline in zinc prices and the premiums they charge on top to supply their regional customers. Prices initially rallied strongly in the early stages of the energy crisis as the wave of smelter curtailments sparked concerns about shortages, but those fears have since been counterbalanced by sustained weakness in demand from manufacturers. 

Zinc rallied to as high as $2,615 a ton on the London Metal Exchange after the announcement, before paring those gains. The metal was trading 2.2% higher at $2,569 a ton as of 11:26 a.m. local time, while most other metals were flat to lower. Prices are down about 3.4% so far this year, after falling almost 11% in 2023. 

Nyrstar runs three smelters in Europe, as well as operations in Australia and the US. The Budel plant was operating close to its capacity of about 300,000 tons-per-year prior to the cutbacks in 2021, the company said at the time. 

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