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The scale of Europe's industrial nightmare is mind-boggling


It's hard for us in the USA to imagine what it's like for industries in Europe right now, with the supply of natural gas from Russia cut off and few alternative sources available.  The Wall Street Journal reports:

Europe’s energy crisis has left few businesses untouched, from steel and aluminum to cars, glass, ceramics, sugar and toilet-paper makers. Some industries, such as the energy-intensive metals sector, are shutting factories that analysts and executives say might never reopen, imperiling thousands of jobs.

The question is whether the current pain is temporary, or marks the start of a new era of deindustrialization in Europe.

. . .

In the city of Žiar nad Hronom, Slovakia, built around a 70-year-old aluminum factory that supplies car-part makers across the continent, some fear for their financial future. “This is probably the end of metal production in Europe,” said Milan Veselý, who has worked at Slovalco, majority owned by Norway’s Norsk Hydro ASA, all his adult life, following in his parents’ footsteps.

Slovalco is among the companies hit by volatility in electricity prices across Europe caused by low Russian supplies of power-generating gas. For years the factory was by far the biggest buyer of power in Slovakia, consuming 9% of the country’s electricity, most of it from nuclear energy. Before energy prices started rising last year, Slovalco paid about €45 (about $45) for each megawatt-hour of power. In 2022 so far it has paid €75, in a deal locked in last year. In late August, prices hit €1,000 across Europe.

Slovalco didn’t renew its power contract for 2023, which would have cost €2.5 billion euros at the recent peak in power markets. Mr. Veselý, the plant’s manager, is winding down primary-metals production, leaving a small recycling operation. He is also dismissing 300 of 450 workers. “The volatility of the price of electricity these days—it’s crazy,” he said. “This is the way we are actually killing industry.”

. . .

The factory closures come at a ruinous cost. Companies in energy-intensive industries say they face going bust this winter without government support. Complex supply chains in sectors such as the auto and food industries are getting gummed up, adding to inflationary pressures just as pandemic snarl-ups show signs of easing.

Norwegian fertilizer giant Yara International ASA, which uses gas as an ingredient, has cut crop-boosting ammonia production by 65% across its European factories.

. . .

Metals producers, which require significant power to break down and form chemical bonds, are at the front of the crisis. Electricity prices have more than doubled this year, propelled by high gas prices, trouble in France’s nuclear fleet of power plants and low hydropower generation.

ArcelorMittal SA, one of the world’s largest steelmakers, will close a blast furnace in Bremen and a so-called direct reduction plant in Hamburg that produces sponge iron, used to create crude steel. In Germany, ArcelorMittal had already reduced gas demand by about 40%, compared with what it planned to consume at the start of the year.

“We have never had such upheavals in the energy prices,” said Reiner Blaschek, chief executive of the company’s German business. “Everything that is associated with enormous volatility in the short term is for us as a commercial enterprise, to put it mildly, pure poison.”

“You have to reinvent the whole energy supply chain on the go,” Mr. Blaschek added.

. . .

Zinc stockpiles have almost run out in the EU, leading customers to import metal from China, according to metals industry lobby group Eurométaux. Analysts say European output of primary aluminum is dying out, leaving the continent with recycling operations that produce metal suitable for industries such as packaging, but not for wheel hubs, brakes or parts for airplanes.

Aluminum smelters are finding themselves not able to renew their power contracts. Companies need 15 megawatt-hours of power to produce a metric ton of primary aluminum, costing €9,000 at recent electricity prices, while a metric ton can be sold for less than €2,500, according to Germany’s metal association, WV Metalle.

“We need immediate emergency aid now, otherwise we are threatened with deindustrialization in Germany,” said Franziska Erdle, WV Metalle’s general manager.

. . .

Some factories, such as zinc manufacturers, can restart quickly when the economics add up again. For others, including glass and aluminum makers, reopening is a lengthy and expensive process that may never make financial sense.

There's much more at the link.  Scary, but highly recommended reading.

Imagine how our economy would look if US industries in the same areas were similarly affected.  We'd be looking at hundreds of thousands of workers laid off, an impossible burden for unemployment insurance and/or welfare to cover;  and given the Biden administration's emphasis on the "Green New Deal", it's unlikely aid would be forthcoming for those "old-fashioned" industries to restart production in due course.  To them, the deindustrialization of America would be a feature, not a bug.  That's absolutely crazy, of course, but then . . . that's what you get with moonbats in power.

We - and by "we" I mean you and I, the people who will be most affected by this - we need to start working out how this will impact our own lives.  Read through the WSJ article and consider how each negative will affect the average consumer.  A few examples:

  • Some factories may never reopen - could that affect our jobs?  Our communities?  What's a town to do when its major (possibly only) employer closes?
  • Volatility of energy prices - our incomes aren't going to fluctuate in step with them.  How will we afford massive increases in our energy costs?
  • Government support for companies - this isn't only on a federal level.  States and cities might offer financial aid to local industries to keep them afloat.  If they do, the taxpayers will pay for it - meaning, you and I.  It may not be in the form of cash;  instead, a town may offer rebates on rates for a period.  However, that town still has to provide basic municipal services.  If a company isn't paying rates, it'll have to raise them on everybody else - again, meaning you and I.
  • Reinventing the energy supply chain?  When the federal government is blocking new hydrocarbon energy projects, and restricting existing ones?  When it wants to encourage the use of electric vehicles, but does nothing to subsidize or encourage new power stations to recharge them - and, even if it did, those power stations would take up to a decade to come online?
  • Reopening factories may never make financial sense.  What does that do to everybody and every institution that has depended on those factories?
You see, this isn't a remote crisis;  and just because it's in Europe doesn't mean we won't encounter it ourselves.  This is a globalized world, where the "butterfly effect" is well and truly active in economic terms.

Food for thought - and as much pre-emptive planning and emergency preparation as we can afford.


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