Some of Europe’s biggest energy consumers, from steelmakers to chemical companies, are stepping up production cuts amid warnings that soaring prices and weak demand are rapidly eroding competitiveness.
Several steelmakers, including Europe’s largest company ArcelorMittal, have announced in recent days that they want to shut down some of their blast furnaces from the end of this month. ArcelorMittal’s German operations have warned that high costs are “weighing heavily” on its competitiveness. In Spain, Ferroglobe temporarily closed two furnaces.
Miles Roberts, chief executive of FTSE 100 packaging company DS Smith, said businesses must be prepared for energy to be rationed this winter.
“We expect that there will be a rationing system throughout Europe, we are preparing for that. It might not happen, but we have to plan now,” he told the Financial Times.
The company, which relies on gas for up to 70 percent of its energy use, is combating high prices by hedging, diversifying its energy use and reducing consumption.
Russia’s decision this month suspend supplies indefinitely through the critical Nord Stream 1 gas pipeline has heightened concerns among producers across Europe about energy shortages this winter. At the same time, companies are dealing with lower demand from customers who themselves are struggling with higher operating costs. Russian gas supplies to the EU have been cut by around 80 percent since the beginning of the Russian invasion of Ukraine.
On Friday, EU energy ministers supported a windfall tax for energy producers help address costs for households and businesses.
Christian Kullmann, CEO of Germany’s Evonik, a specialty chemicals company based in Essen, said the country needed to keep its remaining nuclear power plants operating.
“I am worried about a sharp recession in the winter. . . It will be necessary to continue operating three nuclear power plants,” he said. Manufacturers, he added, were facing an “acute price crisis”. “We don’t have a supply crisis yet, but there are warning signs.”
Evonik replaces up to 40 percent of natural gas in its domestic plants with liquefied petroleum gas. The coal-fired power plant also continues to operate.
Chemicals group BASF said it had already reduced its demand for gas since March, including switching to alternative fuels such as oil where possible. The company said in a statement that it could continue to operate its large Ludwigshafen plant at reduced capacity if natural gas supplies do not fall below “about 50 percent of our maximum natural gas demand.”
Stefan Borgas, chief executive of RHI Magnesita, a FTSE 250-listed producer of refractories – heat-resistant materials used in linings typically found in steelworks – which operates four plants in Germany, said Europe has a “structural cost disadvantage energy” compared to the rest of the world due to the war in Ukraine and also due to the “structural lack of investment in energy over the last 25 years”.
In the UK, where the government last week announced plans to subsidize energy supplies, worry the scope and costs of the support remain. Steve Hammell, finance director of Sheffield Forgemasters, said he was concerned about the allocation.
“Allocating is a risk for us to be mindful of,” he said, despite the company being nationalized by the government last year. Sheffield, which makes forgings and castings for Britain’s nuclear submarines, had asked for an exemption from electricity allocations as a precaution given its defense work, Hammell said. The company has implemented energy efficiency measures at its Yorkshire headquarters.
DS Smith’s Roberts said the company is aiming to reduce energy use at its UK plants by 15 per cent – to match the EU’s reduction target.
“It’s purely a company thing, we’re saying we think it’s right that every part of our business works to reduce energy consumption. The fact that the UK government isn’t asking for it is somewhat irrelevant.