War and energy crisis grind more and more factories to a halt

War and energy crisis grind more and more factories to a halt

The energy crisis has caused a growing number of difficulties to industry players with the eruption of the Russia-Ukraine war exacerbating the situation further. As a result, plants and factories are starting to shut down in more and more large cities in Europe and many suppliers are now on the brink of bankruptcy.

ECONOMY WORLD MARCH 16. 2022 17:21

Ceramic industry deep in trouble

Seven ceramic manufacturers have stopped production due to rising energy prices in Portugal, affecting about one thousand employees, the president of the Portuguese Association of Ceramic and Crystal Industries, Jose Sequeira said, adding that these companies are located in the central region of the country. „We are very concerned about those seven companies, but we are much more concerned about the prospect that this number may be much higher in April,” Mr Sequeira said, warning that „under the current circumstances, it is impossible to continue working. The problem is that although „companies need to renew their energy supply contracts,” many have not done so, because they are faced with new, unacceptable prices, he added.

„Companies are not, of course, designed to be idle. This paralysis is a loss in itself, but the fact that when they work, they are producing and losing money is even more aggravating than being forced into a halt,” he said. […] „In these circumstances, we must also resort to emergency solutions and state aid is the only thing that seems to enable companies to continue operating and commercial chains to remain active,”

the association’s president explained, adding that companies want to continue production, because there are orders, but there is nothing to draw on to fulfill them.

Steel production has become cumbersome

Soaring oil and gas prices have significantly slowed down Germany’s economy. In early February, the Federation of German Industries (BDI, Bundesverband der Deutschen Industrie e.V) already warned that rising electricity and gas prices are threatening to crush the economy. BDI President Siegfried Russwurm warned at the time that the situation is so grave that local medium-sized companies in various sectors were considering the option of relocating abroad. The situation requires urgent and firm political action, to preserve these companies globally competitiveness, he added.

Steel industry is one of the hardest hit sectors. Recently, steelmaker Lech-Stahlwerke halted production at its plant in Meitingen, near Augsburg in Bavaria. The company operates an electric steel plant where scrap is smelted, consuming substantially more energy than classic steel works. The plant produces about 1 million tonnes of steel annually, and its electricity consumption roughly corresponds to that of a city with a population of around 300 thousand people. The plant is currently not economically viable, so a shutdown of several days is to be expected,” a spokesman for Lech-Stahlwerke explained. An angry Twitter user mockingly commented the news, saying “An own goal. Well done, Germany!”

Chemical industry on the verge of collapse

The German chemical industry is also heavily impacted by high energy prices. “If gas becomes scarce in Europe, the situation could become extremely problematic,” warned Wolfgang Große Entrup, CEO of the German Chemical Industry Association, or VCI (Verband der Chemischen Industrie e.V.), a few days ago. He added, that

“we cannot switch our energy production or raw material supply to alternatives overnight. This can only be achieved gradually. Therefore, we warn against stopping imports of energy or raw materials from Russia. The burden on society as a whole – especially if there was an embargo on Russian natural gas – would be significant.”

The industry uses about 2.8 million tonnes of natural gas as raw material, primarily for energy production. This is more than a quarter of the country’s total gas consumption. If a Russian oil and gas embargo were to come into force, power plants would have to be shut down for even longer, with serious consequences. According to VCI, about 95 per cent of all industrial products require chemicals – from cars to chips and insulation materials to televisions.

Glass industry also in danger

The glass industry, which employs around 900,000 people, has also run into grave operational problems due to the energy prices in Germany. Natural gas is vital for glass production and furnaces must be heated continuously for their 10-15-year lifespan. Leaving the furnaces to cool renders them unusable. According to the European Container Glass Federation (FEVE), the relaunch would take about 6 months and could cost up to 25 million euros. FEVE has therefore called on decision-makers to work closely with the glass industry in the event of an energy shortage – although the first glass manufacturers have already shut down production. Dissatisfaction in the industry is growing, with one company executive saying in a Twitter post: “Rising energy prices are causing anxiety for the industry and the region, and the beautiful ideas for wind turbines and hydrogen won’t help so quickly”. The CEO added that the energy supply problem has been around for years and is now getting worse.

Paper manufacturers scale down production

The paper industry has also fallen victim to the energy crisis and the drastic price hikes. Many factories have curbed their production volumes while conveyor belts in some other places have completely stopped. For instance the Norwegian Norske-Skog pulp and paper company will certainly keep its Austrian plant shut down until April, but the situation is also similar in Germany and other western EU member states. It won’t be long before the repercussions will also be felt by the consumers, who may be forced to shell out way more on some basic products like folded toilet paper and handkerchiefs in the near future. Besides, some regions are also experiencing problems in supply. „Today, energy-intensive companies must face the question of whether or not they can continue production on a daily basis,” said Stefan Stolitzka, the president of the Federation of Austrian Industries in Styria, adding that the „huge price hikes have posed a serious challenge for months now.”

Logistics companies on the brink on bankruptcy

Perhaps the loudest cries for help are coming from the logistics industry. Many transport companies are curently unable to tackle the high fuel prices, with some deciding to keep their trucks and lorries grounded. The fact that tens of thousands of Ukrainian drivers, who typically worked for German and Austrian transport companies, are now missing from the trucks is another difficulty in the sector. The soaring fuel prices also have an impact on fishermen, who tend to think twice about setting sail these days. Many decide to leave their boats in the ports in a bid to reduce their losses as they prepare to ride out this crisis.

In a recent article, V4NA explained how the drastic price increases are causing major disruptions in France, where truck owners protested the price hikes by blocking access to the country’s oil depots and refineries. We covered the impact of soaring fuel prices and devoted a separate article to how they are bringing the auto industry to a halt.

ECONOMY WORLD

Tags:

energy crisis, energy prices, europe, germany