Europe’s largest industrialists had hoped for the arrival of spring to cut high energy costs, but those hopes were dashed this week with the entry of Russian tanks into Ukraine.
Smelters and chemical plants across Europe were already struggling, before The invasion causes another jump in gas and electricity prices. Now, a growing list of companies, including Europe’s largest chemical maker BASF SE, is warning that the energy crisis will continue to pierce their bottom line for the foreseeable future.
“Energy prices will remain at a high level and will not return to normal soon,” said Martin Brodermiller, CEO of BASF.
BASF incurred about 800 million euros ($900 million) from rising gas prices in the fourth quarter, and the situation could worsen if the United States and Europe expand sanctions against Russia, which supplies the European Union with more than 40% of natural gas.
“It will be very difficult to replace Russian gas with LNG from another source,” Brudermüller added.
BASF is not alone, as the energy-intensive metals industry is also suffering, and Aluminum Dunkerque Industries France, Europe’s largest aluminum smelter, has planned to ramp up production after the French government pledged to bear up to 80% of the cost burden, but a labor union official He said the renewed rise in prices after the Russian invasion of Ukraine halted the plan.
Meanwhile, Germany’s Trimet Aluminum SE said manufacturing the metal is not economically viable at current energy prices. Building materials giant HeidelbergCement AG warned on Thursday that earnings are likely to suffer from rising energy costs over the coming months.
European energy prices soared in the fall, sending smaller companies across the continent into bankruptcy, and forcing others to temporarily cut production at unprofitable plants. Typically, the continent’s major industrial companies buy their energy in monthly tranches, a strategy that initially enabled them to absorb price shocks and gradually pass them on to consumers.
government aid
European companies have begun to seek government intervention, France has already moved to ease gas costs for consumers and Prime Minister Jean Castix froze gas tariffs in November until the end of 2022, with the government pledging to compensate suppliers with loans until prices recede. Italy also reduced taxes on gas consumption.
Germany, which imports more than half of its natural gas from Russia and has the highest prices for industrial electricity in the European Union, has yet to step in.
A spokesman for the German Chemical Industries Association, VCI, said the country’s energy-intensive companies are watching developments in Ukraine with concern and renewed calls for gas and electricity taxes to be reduced to a minimum under European law.