European industries are being hit so hard by rising energy costs that they are cutting back or shutting down production, losing global market share and permanently damaging Europe’s competitiveness.
Rising natural gas and electricity costs have pushed up operating costs in every industry, from steel and automotive manufacturing to textiles and clothing. If manufacturers scale back, close or relocate production, they risk never reopening in Europe, undermining the EU’s competitiveness, including in sectors crucial to the energy transition such as metals.
European industry groups are cautiously welcoming the various EU proposals to ease the burden on businesses from high energy prices, but say much more is needed to keep the EU competitive and save industries from shutdowns and massive job losses.
existential threat
Rising energy prices have triggered a wave of aluminium Capacity cuts across Europe as smelters reel from sky-high gas and electricity prices while demand remains weak on worries about global economic growth.
In September, the European metal industry called on the EU to take immediate action to prevent the industry from collapsing due to high energy costs facing an existential threat from rising electricity and gas prices.
The fertilizer industry is also suffering from natural gas prices, which are 15 times pre-crisis levels, 10 times US prices and well above prices in Asia, according to group Fertilizers Europe says.
Rising natural gas prices are driving up electricity prices, and they’re also hurting producers of ammonia, a key ingredient in fertilizers, since natural gas is the main feedstock for ammonia production. Globally, 98% of ammonia plants around the world use fossil fuels as feedstock, mainly natural gas (72%) and coal (22%). the RRP. See also: What to Expect for Energy Revenue in Q3
For example, Norway-based Yara has curtailed ammonia production this year due to rising natural gas prices, with the cuts affecting overall European ammonia capacity utilization up to about 35% from Aug.
Europe’s industry calls for EU-wide remedy
“With 70% of ammonia production in Europe shut down since August, the industry is looking for the immediate relief measures needed to restore production,” says Fertilizers Europe said in September.
“The gas market solutions will take time, which our industry does not have. The Solidarity Fund is a positive development, but its effectiveness depends on rapid implementation at EU Member State level to ensure that the funds available for the most affected sectors such as the fertilizer industry are streamlined,” said Jacob Hansen, Director General at Fertilizers Europe.
Associations of energy-intensive industries, including fertilizer, steelmaking, chemicals, ceramics, mining, glass and paper, underline “The need to take immediate and more efficient action as we see the crisis circumstances in our industries worsening by the day.”
“We reiterate our call on European leaders to urgently introduce EU-wide measures aimed at addressing the impact of natural gas prices on industrial competitiveness and measures to decouple electricity prices from gas prices,” the industry bodies said at the end of September.
Since then, the European Commission has proposed new emergency rules to deal with this energy crisis, including joint gas purchases, price cap mechanisms and solidarity between EU countries in case of shortages.
The aluminum industry association said in response: “We support the energy crisis proposals, they complement the adopted Council regulations, but we need stricter measures to immediately mitigate the impact of gas prices on energy-intensive industries and to maintain a thriving and sustainable industrial base in the EU.”
loss of competitiveness
European Aluminum along with the Ceramics, Fertilizers and Steel Associations said that “the current manufacturing crisis and closures in Europe are rapidly leading to another crisis: the rise of cheaper imports into Europe is capturing market share and prolonging temporary closures.”
In Germany, Europe’s largest economy, the automotive industry currently sees the massive increase in energy costs as the greatest challenge, according to a survey by the Association of the Automotive Industry showed Last month.
According to the survey, 10% of companies are already having production cuts due to the extremely high energy costs, while another third of the companies are discussing production cuts.
“It is therefore not surprising that 85 percent of companies see Germany as an internationally uncompetitive location in terms of energy prices and security of energy supply,” says the association.
The energy crisis in Europe and rising energy costs for industry could lead to becoming based in Europe lose automakers up to 1 million production units per quarter between this quarter and the end of 2023, S&P Global Mobility said in a report last week.
In Italy, rising energy costs are bringing local textile and clothing companies to the brink of collapse and risking the industry moving production back to Asia, Sergio Tamborini, president of the industry association Sistema Moda Italia, told local outlet Nordest Economia in an interview.
The European Round Table for Industry (ERT) warned in a report this month that “high energy prices and strained raw materials supply chains are rapidly undermining the basis for European industry’s global competitiveness and its ability to meet ambitious decarbonization targets.”
“The energy-intensive industry in the EU is facing an existential crisis. Unless European political leaders and policymakers take drastic action to reduce energy bills for energy-intensive businesses in the coming weeks and months, the damage will be irreparable and result in significant job losses in Europe,” ERT added.
According to analysis from the Economist Intelligence Unit last week,
“Demand reduction is forcing industry across Europe to a standstill and will drive input costs to levels that make European industry uncompetitive. This can last for several years and result in global supply chains moving away from Europe.”
By Tsvetana Paraskova for Oilprice.com
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