As winter approaches, and in many parts of Europe it has already arrived, Europeans are worried that the heating of their homes and hot water in their bathrooms will be sacrificed at the EU’s difficult rate, Europe’s energy exclusion from Moscow.

However, well before the onset of winter, it turns out that the price of this political and economic choice is not only higher, but also, perhaps, entails more irreversible damage to the entire European economy.

The warnings are clear, coming from industry associations, heads of financial institutions, but even politicians, and they concern the risk of Europe losing its energy-intensive industries. As they point out, because of the unsustainable cost of energy, European industries are losing competitiveness, closing production, reducing production, moving their units to other places, or even investing significant capital in the US, where they can be transferred on a permanent basis.

From steel and zinc mills to paper mills, the glass and ceramics industries, and the automotive and pharmaceutical industries, Europe has seen industrial production decline since the summer months as energy prices become unaffordable. When temperatures begin to drop, nothing but the worst is to be expected.

The image of the largest European steel industry ArcelorMittal is indicative, which, having closed production units throughout Europe, expects that in the last quarter of the year alone, its production will decrease by 17% compared to the corresponding period last year.

The depletion of industrial production began in the summer months, when energy prices became unaffordable.

Something similar is happening with the steel mills of Acerinox SA, Salzgitter AG and Liberty Steel. Spain’s Acerinox has already closed its Cadiz division and laid off 1,800 workers, 85% of its workforce. In Germany, Salzgitter closed a foundry at its Paine plant in Lower Saxony, while Britain’s Liberty Steel suspended production at its Rotterdam plant. And many others, much less well-known, such as the Spanish Celsa, paralyzed in the summer due to the high cost of energy, and Megasa, which suspended the operation of two of its units in Galicia.

Investment bank Jefferies estimates that at least 10% of steelmaking capacity in Europe has been idle in recent months.

At the same time, according to the Union of European Industrialists Eurometaux, 50% of European production of aluminum and zinc has already been stopped.

As indicated by this Union, 40% of the costs of industries in this sector are electricity. Thus, the price hike for it brought many industries to their knees. Among them are French Aluminum Dunkerque Industries, German Trimet Aluminum, Dutch Aldel and Italian Alcoa.

The situation is equally difficult for the aluminum and metallurgical industries in the EU member states. in Eastern Europe and the Balkans, for example for Alro in Romania, Slovalco in Slovakia and Talum in Slovenia. At the same time, the Federation of European Fertilizer Producers reports that more than 70% of fertilizer production has been halted due to natural gas prices. And something similar is happening across almost the entire spectrum of European industry.

German industry “moves” to the USA

The blow is already being felt in the until recently steam engine of the European economy, Germany, which the situation seems to be punishing for its longstanding energy alliance with Russia. The idea that the American politician considered after the Second World War, the deliberate de-industrialization of Germany as a form of punishment, threatens to be realized in an energy war between Moscow and the EU. German companies represent 27% of industrial production in the eurozone in terms of value. A survey conducted last month by the VDA, an association of German car manufacturers, shows that 85% of car manufacturers believe that Europe’s largest economy is no longer competitive due to high energy prices, as well as the uncertainty that now surrounds the supply of components. raw materials. , etc. etc. Only 3% of these industries plan to invest in Germany, while 22% intend to transfer investments to other countries. Indeed, German industry is investing more and more of its capital in the superpower. Germany’s former national airline Lufthansa, giant Siemens, discount supermarket chain Aldi, and healthcare provider Fresenius are among more than 60 German companies that have invested a total of $300 million in Oklahoma. Famed German automaker Volkswagen opened construction on a new battery plant in Tennessee, US, in June and invested a total of $7.1 billion in supplier agreements in North Carolina. Mercedes-Benz and BMW have taken similar steps, while the pharmaceutical company Bayer has invested $100 million in a biotechnology center in Boston. After all, the bulk of German industry is small and medium-sized enterprises, known as Mittelstand, which are the main driver of German innovation and technological development. However, they are often family-run businesses and have very limited ability to cover the high cost of energy. At the same time, however, large companies such as the Prysmian group, one of the largest cable manufacturers in the world, have already moved part of their production to Hungary and the Czech Republic and started to buy components from Turkey. I also have a hard time. However, what seems to be of great concern to many industries across Europe is what will happen to the German chemical industry. BASF, for example, with some of its divisions supplies a very wide range of industries in many sectors. And, as representatives of the Cefic European Chemical Industry Council emphasize, “if the German chemical industry collapses, in three weeks, all supply chains in Europe will have problems.”

Investments in renewable energy and “storage” of natural gas from Italian plants

In Italy, Confindustria, an association of Italian industrialists, is warning of an “economic earthquake” that the new government will soon have to face as it seeks to support companies hit by the energy crisis. But according to the Italian bank UniCredito, which finances Italian companies’ investments in renewable energy, Italian companies have adapted quite well to the situation. Most of its consumers managed to produce the energy they need at their own expense in the amount of 30% to 40%, and in some cases even 50%. But these are industries that are not related to energy-intensive sectors. An example of an energy-intensive industry is Pelliconi, which produces glass bottles for soft drinks and beer.

When the Italian media began to talk about the risk of winter gas rationing, the Pelliconi industry announced that it would continue to supply bottles to its customers, which include Coca-Cola, Heineken and Guinness. Pelliconi produces 35 billion bottles a year, mainly in Italy, but also in Egypt and China, by ramping up energy-intensive production and investing in photovoltaics.

“When you’re a businessman and you hear about the risk of a gas shortage on the news, you have to do something,” says Marco Cecchi, head of Pelliconi, which, like other Italian industries, is facing soaring electricity prices. As Andrea Orcello, CEO of UniCredito, points out, these energy crisis adaptation strategies used by various Italian industries such as Pelliconi are now a variable in the equation that could determine the final outcome. “Businesses adapt in different ways,” he said recently, adding that “it would be a mistake to think they don’t do anything. When we talk to our customers, we constantly see that companies are reorganizing their networks, the logistics companies they work with, everything.”

Indeed, most companies in Italy are rushing to install solar panels, while some others are planning more ambitious plans. SBE-Varvit Industry has ordered 400 containers of natural gas to be shipped to its plant in northeastern Italy by January to cover any shortages that may occur during the winter. Even in the winter ceramics industry, which, like the glass and paper industries, is energy-intensive and has suffered from energy price spikes, there are corresponding success stories. Italcer estimates that it will be able to cover a quarter of the energy consumed after the completion of the construction of two thermal and electrical units. “Since September 2021, you have been able to see what is coming,” says Managing Director Graziano Verdi, adding that Italcer’s natural gas and electricity costs have increased by 60 million euros. That’s why he invested 10 million euros in these two CHP units, which will save them 4 million euros this year. Source: Reuters.

Warning

After seeing iconic German industries such as Volkswagen, Lufthansa, discount supermarket chain Aldi as well as Bayer invest in the US, Oliver Falk, head of the Ifo economics institute’s Center for Industrial Organization, warned that “if energy prices remain at high levels, some industries will leave Germany forever.

Problem

Nicolas de Varennes, President of the Union of French Energy Intensive Industries (Uniden), noted that “with a sharp rise in energy prices, French energy intensive industries can no longer produce at competitive prices”, while warning Europe that there is a risk of “the collapse of the European steel, chemical, glass , ceramic and paper industry”.

They are asking for action.

Speaking to European leaders, the European non-ferrous metal industry association Eurometaux expressed “serious concern about the impact winter could have on businesses” and called for immediate action to keep “Europe’s strategically important electricity-intensive industries energy-intensive and prevent permanent job losses.” “.