Surging energy prices in Europe are hurting more than just consumers. The price spikes have started to hit industrial activities, threatening to deal a blow to the post-Covid-19 recovery in European economies.

This triple whammy of reduced consumer purchasing power, lower industrial production, and higher operating costs. Giant European firms, from chemicals and mining to the food sector, say sky-high gas and electricity prices are hitting their profit margins.

Meanwhile, the record European natural gas prices are sending Asian spot prices of liquefied natural gas (LNG) to record levels for this time of the year—between peak summer demand and ahead of the winter heating season.

Europe’s tight gas market, low wind speeds, abnormally low gas inventories, and record carbon prices have combined in recent weeks to send benchmark gas prices on the continent and power prices in the largest economies to record highs.

Almost daily, gas and power prices in Europe surge to fresh records, putting pressure on governments as consumers protest against soaring power bills. It’s not only consumers that struggle with the record energy prices. Industries are starting to feel the heat, too?

CF Industries, a manufacturer of hydrogen and nitrogen products, said this week it was halting operations at both its Billingham and Ince manufacturing complexes in the UK due to high natural gas prices.

Norway-based Yara, one of the world’s top ammonia producers, is curtailing production due to the record-high gas prices.

Record high natural gas prices in Europe are impacting ammonia production margins, and as a result Yara is curtailing production at a number of its plants. Yara will by next week have curtailed around 40% of its European ammonia production capacity.

Germany’s large Bio-ethanol producer CropEnergies AG said its operating profit for the second quarter of its fiscal year nearly halved as the significantly higher net raw material cost and the recent rise of energy prices to record levels were the main burdens on the results.

Also in Germany, the largest chemicals producer in Europe, BASF, and the top copper producer, Aurubis, also flag high energy prices as a significant burden on their profits and profit margins.

Major industrial companies in France, such as top sugar producer Tereos and starch producer Roquette Freres, told Bloomberg that record-high energy prices are putting inflationary pressure on their financials and on every other (consumer) cost.

All those headwinds for Europe’s industry could be just the beginning, especially if the coming winter in Europe and Asia turns out colder than usual, driving up further demand for gas and power. Industries in Europe face the risk of blackouts in a cold winter.

A slowdown in the industrial sector is one of the last things Europe needs right now, just as its economies have started to rebound from the pandemic.

Utilities and industries in Europe, and probably governments, are hoping for a mild and windy winter, otherwise, the natural gas supply crunch could last through the end of the first quarter of 2022.

Oil / ABC Flash Point News 2021.

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21-09-21 20:42

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