FMPAC

Energy crisis chips away at Europe’s industrial might

It is far too early to rejoice, though. The drop is not just because industrial companies are turning down thermostats, they are also shutting down plants that may never reopen.

Energy-intensive industries such as aluminium, fertilisers and chemicals are at risk of companies permanently shifting production to locations where cheap energy abounds, such as the United States. Euro-zone manufacturing activity this month hit its weakest level since May 2020, signaling Europe was heading for a recession.

The International Energy Agency estimates European industrial gas demand fell by 25% in the third quarter from a year earlier. Analysts say widespread shutdowns had to be behind the drop because efficiency gains alone would not produce such savings. “We are doing all we can to prevent a reduction in industrial activity,” a European Commission spokesperson said in an email.

But a survey released on Wednesday showed companies in Europe’s industrial powerhouse Germany were already scaling back because of energy costs. More than one business in four in the chemicals sector and 16% in the auto sector said they were being forced to cut production, a survey of 24,000 businesses by the German chambers of commerce and industry (DIHK) showed.

Moreover, 17% of auto sector companies said they were planning to move some production abroad. Reopening an aluminium smelter costs up to 400 million euros ($394 million) and is unlikely given Europe’s uncertain economic outlook, Chris Heron at industry association Eurometaux said. “Historically, when these temporary closures happen, permanent closures come as a consequence,” he added.

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