- High gas prices overshadow the recovery after COVID
- Some companies are facing closures despite rising order books
- Gas prices have risen more than 300% this year
- The last quarter can see a carnage – industrial official
MILAN, October 27 (Reuters) – Continental Europe’s $ 35 billion ceramic industry believed the worst was over when sales rose more than 10% in the first half of the year and order books began to replenish following the pandemic damage.
But rising gas prices have caught companies in an energy-intensive business, leaving them to choose between passing on higher costs to customers and reducing or stopping production. And all at a time when many feel that the costs of energy conversion are already harming them.
Iris Ceramica Group, based in the central region of Emilia-Romagna and one of Italy’s leading manufacturers in the sector, has had to impose an energy surcharge of 3% on invoices to dampen the blow.
The reception has been mixed.
“Some customers realize that we have done our best to limit price increases, but others, especially the large bulk buyers, interpret contracts to the letter and ask for a notice period,” says CEO Federica Minozzi.
It was Minozzi’s father Romano who first persuaded the gas transport group Snam (SRG.MI) to bring its network to the area in the 1980s, effectively launching Italy’s “Tile Valley” district.
Now his daughter is planning to build the industry’s first green hydrogen ceramics factory run by a rooftop photovoltaic plant. The project, which started before gas prices exploded, is easier to justify in the face of higher gas prices.
“Given the latest developments, production can become more economically competitive faster than we thought,” Minozzi said.
Europe’s ceramics industry sucks gas to fire up furnaces and keep 200,000 direct employees in one job. Energy bills usually accounts for up to 20% of overheads.
Without a short-term solution in sight, the last quarter of the year could turn into a bloodbath, warns Giovanni Savorani, head of the Italian Confindustria Ceramica Federation.
“It’s a total disaster. There are companies that risk shutting down production and sending workers home because they can’t balance their books,” Savorani told Reuters.
Italy, which together with Spain dominates Europe’s ceramics trade, has invested more than € 2 billion ($ 2.3 billion) over six years in new materials and technologies to help the country compete with cheaper production from China, India and Turkey.
After the headwinds of covid-19, demand in the tile industry has returned with revenues in Italy during the first six months up by 12.3% compared to the same period in 2019. But the increase in order books can not keep pace with the impact of energy costs.
“I’m thinking of stopping things in January because I can not produce at these prices and make a profit,” said Savorani, who owns his own business.
Natural gas prices has soared 300% this year to record levels in Europe and parts of Asia as economies recovered from the covid-19 pandemic and energy consumption increased faster than supply.
The increases have led energy-intensive industries such as ceramics to review production to cope with a trend that disrupts supply chains and risks driving inflation.
Jose Luis Lanuza, CEO of the Spanish Keraben Group, used to look at gas prices once or twice a year to help decide on structuring contracts for his wall and floor tile business.
“Now I look at the gas every day hoping it goes down,” he said. “We have no alternative energy source. We have to buy gas.”
In September Keraben, owned by Victoria Plc (VCP.L), spent seven million euros to fire up its 140-meter-long furnaces, compared to a monthly average last year of two million euros.
He is now looking at partial stops in December, which could potentially reduce production temporarily by about 50% and bring forward next year’s holiday for employees.
“This could end up with production going elsewhere, outside of Europe,” said Lanuza, citing Turkey, Poland, Vietnam and Mexico as potential alternatives.
“We are already looking at investing outside of Europe. It hurts me but that’s what I have to do.”
Geert-Jan Starting, who runs a 165-year-old brick factory in the Netherlands, compares the crisis to the First World War, when an interruption in the supply of coal from Britain to the Netherlands led to a wave of bankruptcies.
The business survived two world wars and transitions from peat to coal and then to natural gas in the 1960s. But he must now tell customers that he can no longer offer them price guarantees in the midst of market volatility.
“I had not seen this coming a few months ago, price increases of three or four times, and if you ask me what to expect I have no idea.”
($ 1 = 0.8593 euros)
Reporting by Stephen Jewkes and Elvira Pollina in Milan, Isla Binnie in Madrid, Anthony Deutsch in Amsterdam; Edited by Keith Weir and Emelia Sithole-Matarise
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