Some of Europe’s largest energy users are limiting production because they warn that rising electricity and gas prices could lead to higher production costs and jeopardize competitiveness.
Dunkirk’s Alvance, Europe’s largest aluminum producer, has cut production by close to 4 percent since early December as disruptions at several nuclear power plants have caused higher electricity prices in France.
Nyrstar, a zinc producer owned by Trafigur commodity traders, said it would shut down a 150,000-tonne-a-year smelter in Auby, northern France, after Christmas, due to record electricity prices.
The company, which has already cut production at three locations in France, Belgium and the Netherlands due to rising energy costs, said it expects higher prices to continue.
“Electricity is 35 percent of our fixed costs, which is huge,” Xavier Constant, director of the smelter, told France Info radio this week. The closure will last at least two months.
European gas prices have jumped to new records this week as reduced Russian imports increased winter demand.
Gas to deliver to Europe next month, which was already trading at record levels, jumped more than 20 per cent on Tuesday to 181 euros per megawatt hour.
In the UK, prices rose 20 per cent to a record 450 pence per spa on Tuesday, although they returned to 348 pence on Thursday.
Some British steelmakers are pausing production as electricity prices rise, according to UK Steel.
Richard Leese, president of the Energy-Intensive Consumer Group, warned that there were concerns that “as inflation starts to bite, demand could fall, and when that happens, companies will still have very high operating costs.”
Bankers said their phones were “ringing” from commodity traders asking for additional lines of credit to cover margin calls – requests for extra cash to cover trading positions with natural gas and LNG.
Large commodity traders use derivatives to protect contracts from price changes and locked margins. This usually involves the sale of futures contracts related to TTF, the European wholesale gas price.
Gas is used to produce electricity and is used directly to produce products such as fertilizers and plastics. Although most large companies have long-term supply contracts, there are growing concerns that continued price increases could undermine companies’ competitiveness.
Among industry leaders, Tony Smurfit, CEO of FTSE 100 on the list of Smurfit Kappa, Europe’s largest paper-based packaging manufacturer, warned that further price increases for his cardboard boxes are likely.
“If [prices] stay here, it will be very inflationary for the world, ”he said. “Are you applying an additional energy charge and doing so as an exemption, or are you sucking it up and turning it into a normal business flow through price increases?”
With rising energy prices, which have risen four or five times in recent months, companies are facing higher carbon prices, which have tripled since the beginning of the year.
The increase has prompted some of the bloc’s largest energy users, including steel, cement and fertilizer producers, to step up calls on governments to address “unbearably high energy prices”.
In the UK, shadow business secretary Jonathan Reynolds has called on the government to invest £ 3 billion in the steel industry to halt job declines after an analysis showed the loss of 5,500 metal workers in the last nine years.
Reynolds also called the treasury to intervene for protection steel and other energy-intensive industries from sudden energy prices. “The government has just put its ‘off-office’ in place, sitting complacently, while other countries have already taken action,” he said.
Jacob Hansen, CEO of Fertilizers Europe, said that “politicians didn’t really realize how serious it was”.
“The energy market is not working for Europe. . . I worry about [gas] prices now as many plants are back in production [after maintenance]. I think they will reconsider what they are doing, “he said.