Soaring energy bills deal fatal blow to European factories


European factories are beginning to succumb to dangerously high energy prices following Russia’s retaliatory cuts, resulting in inflation above 9% and industrial production expected to deteriorate in the coming days. .

According to Eurostat, industrial production in July 2022 fell by 2.3% in the Eurozone (19 countries that use the euro) and by 1.6% in the European Union (EU) compared to June 2022. Compared to July 2021, it decreased by 2.4% and 0.8%. This was his biggest drop in production in over two years.

Mainly due to high energy prices, factory output in 19 eurozone countries fell, with Ireland (down 18.9% monthly), Estonia (7.4%) and Austria (3.2%) showing the largest figures. Ireland decreased by 23.7% each year, Estonia and Slovakia by 6.4% and Belgium by 5.1%. Germany suffered a month-on-month decline of 0.7%.

Monthly production of capital goods fell by 4.2% in the Eurozone in July 2022. Durable consumer goods rose by 1.6%, intermediate goods by 0.8%, energy production by 0.4%, and non-durable consumer goods by 1.2%.

A further recession is expected in the coming months, impacting manufacturing and consumer spending. “Further industry contraction is on the horizon,” said Rory Fennessey, an economist at Oxford Economics. financial timesHe added that companies “will be forced to cut production even if they have to avoid tight rationing.”

Ireland’s decline weighed heavily on the region as a whole. If the country had been excluded from the data, the decrease was approximately 0.6%. Conal Mack Coyle, chief economist at stockbroker Davey in Dublin, Ireland, told the FT: “There’s a trend here: Irish data have become very volatile, increasingly impacting the Eurozone aggregate figures. “We see moves like this all the time, but they seem to be getting worse.”

Many economists expect the European economy to contract in the coming months, depending on the amount of natural gas procurement from sources outside Russia and government support for local businesses and households.

“The darkest cloud on the horizon is clearly over the euro zone,” said Marcelo Carvalho, head of global economics at BNP Paribas. wall street journal.

unstable metal industry

The energy-intensive metals industry is one of the sectors bearing the brunt of high energy prices.

“50% of the European Union’s aluminum and zinc capacity has already been forced offline due to the power crisis, sharp cuts in silicon and ferroalloy production and further impacts being felt across the copper and nickel sectors. ” said the European Metals Association. Eurometaux’s letter (pdf) to the European Commission, the European Parliament and the European Council.

“Several businesses had to announce indefinite closures last month, and many more are on the brink of a life-or-death winter for many businesses. We are facing electricity and gas bills that far exceed the selling price of our products.”

Once closed, these industries face significant costs to restart. They blamed the crisis on “uncertain gas supplies, continued nuclear and coal phase-outs” and reliance on inadequate power sources to meet market needs. “More closures will follow next year if businesses are not protected by hedges on electricity prices in 2022.”

“History has proven that once an aluminum smelter is gone, it never comes back,” said Mark Hansen, chief executive of metals trading firm Concord Resources. bloomberg“There are arguments beyond employment. It is an important base metal commodity, used in aircraft, weapons, transportation and machinery.”

rising energy prices

The benchmark natural gas EU Dutch TTF price surged from €201.864 per megawatt (MWh) on August 1st to €346.522 per megawatt (MWh) on 26th August. That’s more than a 71% increase after months of energy shortages by Russia. When Russian oil company Gazprom indefinitely shut down the Nordstream 1 pipeline earlier this month, energy prices surged 30% of his.

Since then, the price has fallen, and as of September 19, it remains at €182.262/MWh. This is because European countries have released lines of credit for gas purchases to ensure a steady supply during the winter months. Nevertheless, petrol prices remain over 450% higher than they were on 21 September 2021.

Bloomberg estimates that energy companies in the region had to post more than $1.5 trillion in collateral to continue trading in the natural gas market. This disruption is impacting the ability of many utility companies to purchase sufficient amounts of gas.

Utility companies hedge against price volatility by betting on the market. If they win, they can use that profit to offset immediate price increases for consumers.

Naveen Aslapury

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Naveen Athrappully is a news reporter covering business and world events for The Epoch Times.