Flash alert from European industrial companies on energy costs

Steelmakers, glass makers and other energy-hungry companies in Europe are calling on governments to take action to prevent record gas and electricity prices from hampering the region’s economy.

Natural gas prices in Europe hit all-time highs again this week after flows from Russia, the continent’s main supplier, fell as cold weather boosted demand and Electricité de France HER

decided to shut down a nuclear power plant for safety reasons. These measures made the continent the hottest gas market in the world, prompting ships carrying US refrigerated gas to Asia to change course and head to Europe, where they could search for more for their cargoes. .

The tanker fleet helped cool gas prices at the end of the week. Even after falling on Friday, benchmark Dutch gas futures were still more than six times higher than a year ago at € 110 ($ 124.71) per megawatt hour. Wholesale electricity prices have also skyrocketed across the continent.

Rising electricity prices led Europe’s largest aluminum smelter, Aluminum Dunkerque, to shut down around 3.7% of its production in early December, the company said. A representative for the company declined to say whether continued increases could lead to further closings.

The zinc operations managed by Nyrstar in northern France, meanwhile, are scheduled to close for maintenance in January. The metals company, owned by commodity trader Trafigura Group Pte. Ltd., said it made the decision because electricity prices in France are expected to be high and volatile in early 2022.

Executives of industrial companies in France have said they shouldn’t pay for electricity at prices that reflect the shortage of natural gas because, unlike Germany or the UK, France gets most of the electricity. its electricity from nuclear power plants. Spanish companies find themselves in a particular dilemma as fixed price electricity contracts are less common than in France or Germany, exposing them to spot market prices.

Energy prices in Europe rose for the first time in early autumn. Companies in need of immediate gas and electricity supplies have been able to largely pass the bill on to their customers, accelerating the pace of inflation in the UK and the Eurozone. But isolated cases of disruption will proliferate if prices remain at historically high levels and authorities do not cushion the blow, according to groups representing the companies.

“The current situation has seriously affected the competitiveness and profitability of energy-intensive sectors,” a group of associations representing the European glass, steel, cement and other industries said on Wednesday. “A prolonged period of unbearably high energy prices could lead to serious losses.”

The associations have called on national governments to roll out tools that the European Union has said member states can use to mitigate the impact of soaring prices. For example, the EU said in October that governments could reduce taxes or levies on gas and electricity without breaking the bloc’s state aid rules if all energy consumers benefit.

The prices of carbon permits that utilities and other emitters are required to hold under the EU’s emissions trading scheme have also jumped this year. In their statement on Wednesday, industry associations said the market should be changed to avoid sudden spikes in energy prices and prevent companies from moving carbon-intensive businesses outside of the bloc.

A spokesperson for the EU’s executive body said it was closely monitoring rising energy prices.

The production of zinc, used in construction, automobiles and goods such as washing machines, is one of the industries most exposed to the energy crisis. Production cuts have already pushed up metal prices, and Citigroup analysts expect many more zinc smelters to follow the Nyrstar plant in Auby by cutting production or shutting down completely.

Aluminum Dunkirk, seen before its takeover by private equity firm American Industrial Partners, has cut production in response to high electricity prices.


Photo:

Thierry Monasse / Bloomberg

Another affected industry is the UK utilities sector.

The UK government has caps on the prices that energy providers can charge consumers, meaning that any gas or electricity they buy on the spot market currently costs more than they can earn. Twenty-eight suppliers to more than 4.2 million homes have failed this year, according to regulator Ofgem, which will require suppliers to undergo financial stress tests from January to avoid a repeat.

The cost of transferring customers to surviving suppliers, including EDF and the subsidiaries of Centrica PLC and Royal Dutch Shell PLC, is increasing. Documents released by Ofgem this week showed the regulator approved £ 1.8bn, equivalent to $ 2.41bn, in payments to cover the costs of providing energy to customers of bankrupt companies.

The bill does not include the costs of delivering the energy to the 1.6 million customers of Bulb Energy, the largest failing supplier. Court-appointed directors run the company because it had too many customers to quickly transfer them to other energy companies.

British consumers’ energy bills are set to rise in April, when Investec analysts say the price cap is set to rise from £ 1,277 to £ 2,000. The bank estimates that the increase, reflecting the surge in prices in the wholesale market, will add 1.8 percentage points to consumer price inflation in the UK

“The [energy] the industry has never been so vulnerable, ”said Audrey Gallacher, deputy managing director and retail director at Energy UK, an industry group.

Write to Joe Wallace at [email protected] and Sam Schechner at [email protected]

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