European Factory Closures May Become Common

Published: Jun 27, 2022
Updated: Jun 30, 2022

Closures of manufacturing businesses such as fertilizer plants in Europe, due to high natural gas costs, are not news. However, high prices on forward contracts stretching out for the next few years are a new negative signal for energy-intensive industries.

As Javier Blas reports in Bloomberg:

The European manufacturing sector is crumbling under the weight of sustained high electricity and natural gas prices. With little prospect of relief, another wave of curtailments and closures looms . . .

For example, an aluminum smelter would lose about $200 million annually at current forward prices for electricity and carbon dioxide for the next year. And that’s despite elevated prices for the metal in the markets . . .

The affected industries will be those with the most intensive energy use: fertilizer, base metals and steel, chemical, ceramic, glass and paper. But increasingly food production will be, too. Heated greenhouses and chicken farms face astronomical energy bills.

Unfortunately, such closures may further erode the foundations of Western democracies, as middle class and poor factory workers lose their livelihoods along with small business owners.