European industry weighed down by soaring energy prices

European industrial giants have worried for months that gas shortages this winter will cripple production. But even with fuel available, companies find they can’t afford it.

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(Bloomberg) — European industrial giants have been worried for months that gas shortages this winter are crippling production. But even with fuel available, companies find they can’t afford it.

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“It’s not about closures. It’s the pricing, it’s the cost,” said Christian Levin, managing director of Traton SE, the truck manufacturing unit of Volkswagen AG.

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Europe pays seven times more for gas than the United States, underscoring a dramatic erosion of the continent’s industrial competitiveness that threatens to cause lasting damage to its economy. With Russian President Vladimir Putin redoubling his war efforts in Ukraine, there are few signs that gas flows – and significantly lower prices – will be restored to Europe in the near term.

Signs of economic transformation are already underway: Germany, Europe’s largest economy, has seen its usual trade surplus shrink as soaring imported energy costs offset its exports of high-energy cars and machinery. added value, and chemical companies began to move their production outside the country. Last month, German producer prices jumped a record 46%.

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Plastics maker Covestro AG will not make growth investments in Europe if the crisis persists and will instead look to Asia, where CEO Markus Steilemann said the company could get energy at 20 times cheaper than on the German and European spot market. Volkswagen, Europe’s biggest carmaker, warned on Thursday that it could reallocate production away from Germany and Eastern Europe if energy prices do not fall.

Chancellor Olaf Scholz will travel with a group of business leaders to the Middle East this weekend as he tries to secure liquefied natural gas deals with Saudi Arabia and Qatar to offset cuts in the Russia.

But negotiations have been difficult, with gas suppliers including Qatar playing hardball over the price and duration of potential deals, German officials said. Talks with suppliers in Europe and North America proved equally complex, underscoring the uphill struggle Scholz faces to lock in supplies at prices that will keep Germany’s economic base competitive.

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Covestro expects its fuel bill to exceed 2.2 billion euros ($2.2 billion) in 2022, nearly four times its costs in 2020, the year before Russia starts fueling. choke off Europe’s gas supply.

« At the current price level, Germany’s energy-intensive industry is no longer globally competitive, » a Covestro spokeswoman said. « For a number of chemicals, imports from the United States or China are already cheaper than producing them locally. »

Where possible, automakers including Volkswagen and BMW AG are switching from gas to oil or coal to keep facilities running. But some energy-intensive manufacturing – such as metals, paper and ceramics – has become unfeasible, prompting a growing number of companies to shut down, move production overseas or, as the chemical giant BASF SE, to import key materials like ammonia from competitors. Mercedes-Benz AG has actually increased production of key auto parts to stockpile in case it has to close German factories.

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« These charges are causing lasting damage to the industrial heart of our economy, » said Christian Seyfert, chief executive of VIK, a group that represents energy-intensive businesses. « We urgently advise politicians to take decisive action so that Germany and Europe as a business location are not completely left behind internationally. »

Governments across Europe, where industrial production accounts for around a quarter of the economy, are taking urgent action to bolster public services and cushion the impact of the crisis. The UK this week announced an estimated £40bn ($44.8bn) plan that would cap wholesale energy prices that fuel gas and power contracts for businesses for six years. month.

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Germany, due to its heavy reliance on Russian gas, has been hit harder by the energy shortage than many of its neighbors. But the rest of the continent is under a similar constraint. In France, glassmaker Duralex, located near Orléans, said it was putting its furnace on standby for 5 months while the company’s order book is full and sales are growing.

“To continue producing at current prices would be a financial aberration,” said Jose-Luis Llacuna, president of Duralex, which exports to 110 countries and featured its Picardy model in the James Bond film “Skyfall”.

French President Emmanuel Macron on Thursday urged small and medium-sized businesses not to sign new energy contracts at « crazy prices », saying governments are in the process of renegotiating gas and electricity costs.

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The stakes are perhaps highest in Germany, where industrial production accounts for around 30% of the economy and employs around 1.15 million people. Energy-intensive factories across the country supply everything from gearbox components for cars to chemicals for medicine and everyday plastics. Covestro, which makes materials for the building and automotive industries, said demand was starting to slump.

« We are slowly losing our customers, » Steilemann said. « We have an increased number of insolvencies, an increased number of closures and very restricted purchases. »

Germany announced this week that it would nationalize Uniper SE, the country’s largest gas importer, with an €8 billion capital injection, and the country is set to impose a gas tax on October 1, which spreads the pain of soaring wholesale energy prices to households and businesses.

Companies have decried this plan.

« Our companies can no longer cope with any further burdens, » said Wolfgang Grosse Entrup, president of the chemical association VCI, an organization that represents BASF and Evonik Industries AG, the main suppliers to the German automotive sector. “The situation is becoming more and more dramatic.



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