/ world today news/ Europe’s industrial heartland faces a potential flight of business as German auto parts, chemicals and steel producers struggle to cope with electricity prices rising to new highs almost daily.
Electricity and gas prices in Germany have more than doubled in just two months, and next year’s electricity price – a benchmark for the continent – has exceeded 540 euros per megawatt hour. Two years ago it was 40 euros.
“Energy inflation is much more dramatic here than anywhere else,” said Ralf Stoffels, CEO of Isolirstoffe, a maker of silicone parts for the automotive, aerospace and home industries. “I fear the gradual deindustrialization of the German economy.
The country relied on gas from Russia to power its power plants and factories, but is now bracing for an unprecedented challenge to keep the lights on and businesses running after Russia cut those flows. Temporary shutdowns due to high prices have been seen before when fertilizer and steel production were curtailed in December and March.
Prices are now showing even more steady growth, adding to the pressure. European gas for next month settled on Thursday at a record high of 241 euros per megawatt hour, about 11 times higher than usual for this time of year.
While the government is somewhat limiting the growth faced by households, businesses are not immune to these rising costs and many are prepared to pass on the increased costs to customers or even close entirely.
“Prices are a heavy burden for many energy-intensive companies competing internationally,” said Matthias Ruh, a spokesman for Evonik, the world’s second-largest chemicals maker with factories in 27 countries.
The company replaces up to 40% of its natural gas volumes in Germany with LNG and coal and passes some of the higher costs on to customers. But the transfer idea doesn’t make sense, he said.
However, there is evidence that Germany’s industrial situation is deteriorating. In the first six months of this year, imports of chemical products rose by about 27% year-on-year, according to government data analyzed by consultancy Oxford Economics. At the same time, chemical production fell, which in June decreased by nearly 8% compared to December.
Last month, the International Monetary Fund said Germany would be the worst-performing G7 this year because of its industry’s dependence on Russian natural gas.
Europe’s biggest copper producer, Hamburg-based Aurubis, is looking to minimize gas consumption and pass on electricity costs to consumers, CEO Roland Harings said.
The BMW car concern is stepping up preparations for a potential deficit. The Munich-based auto giant operates 37 gas units that generate heat and electricity at factories in Germany and Austria and is considering using local utilities instead.
Packaging company Delkeskamp plans to close a paper mill in the northern town of Northrup due to high energy costs, with 70 workers out of a job.
A sustained rise in energy prices could change the continent’s economic landscape, said Simone Taliapietra, a senior fellow at the Brussels think tank Bruegel.
“Some industries will be under serious stress and will have to rethink their production in Europe,” he said.
Translation: V. Sergeev
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