A supply crunch which sent the European energy prices to records is squeezing profits for some of the continent's industrial giants, threatening to derail economic recovery.
The top chemical supplier BASF SE said it had been unable to totally understand the impact of record-breaking electricity prices despite producing 80% of its own power. Aurubis AG, the continent's biggest copper producer, said energy costs have already dragged down profits and will continue to weigh on margins for the rest of the year. Things got so bad in the U.K. that a major fertilizer producer shut two plants with no estimate for when output would resume
Energy prices have rallied from the U.S. to Europe and Asia as economies emerge from the pandemic and people return to the office. This year, European gas prices have nearly tripled, while power costs almost doubled as the region faces a supply crunch which threatens upsetting the recovery of the economy.
If everybody's electricity and gas bills are just going to go up, that is obviously going to hurt industrial spending and also hurt consumer consumption, said Ogan Kose, a managing director at Accenture.
In an emailed statement, BASF said energy prices have increased noticeably over the past few months. The Ludwigshafen facility is the world's largest crude oil production plant and uses 6 terawatt hours of electricity per year, equivalent to the energy contained in about 3.5 million barrels of electric fuel.
As an energy-intensive company, we feel that too, he said.
Aurubis said it was being hurt by an increase in prices despite having good hedging strategies in place. Our margins are particularly affected by the high energy prices in Germany, spokeswoman Daniela Kalmbach said in an emailed statement.
CF Industries Holdings Inc. said Wednesday that it s halting operations at its Billingham and Ince manufacturing complexes in Britain due to high gas prices.
Soaring energy prices are damaging industry and sending costs spiraling to the people, Labour's shadow business and energy secretary Ed Miliband said in a statement. What is it like to see manufacturing sites shut down? If the weather gets cold this winter, Europe could face blackouts, Goldman Sachs Group Inc. said, warning that the region's industrial users will need to curb consumption. The continent is short of time to fill its depleted storage sites before the beginning of the heating season in about a month, with inventories at their lowest level in more than a decade for this time of the year.
The top sugar producer Tereos SCA in France warned of rising gas prices raising production costs tremendously for the company. Starch producer Roquette Freres SA, based in northern France, said high energy prices are creating inflation pressure on every other cost that will end up being passed on to customers. CropEnergies AG, one of Europe s biggest producers of ethanol, said this week rising energy costs led to reduced profits compared to the previous year even as revenues rose.
The struggles faced by Europe s smaller industrial giants point to even greater headwinds for higher energy-intensive firms, which don t typically have their own power-production facilities and have less access to sophisticated hedge instruments that can help offset price gains.
We wouldn t be surprised to see more nitrogen and chemicals production in Europe idled in the coming days until gas prices moderate, Joel Jackson, an analyst at BMO Capital Markets, said in a report Wednesday.