Europe energy crunch forcing factories in UK to shut down

Bloomberg / London

Thursday، 16 September 2021 09:33 PM

Europe’s energy crunch has forced a major fertilizer maker to shut down two UK plants, the first sign that a record rally in gas and power prices is threatening to slow the region’s economic recovery.
CF Industries Holdings Inc said Wednesday it’s halting operations at its Billingham and Ince manufacturing complexes due to high natural gas prices, with no estimate for when production will resume. European gas and power futures tumbled on Thursday on signs energy-intensive industries are curbing consumption.
The move comes as Europe is facing an extreme squeeze for energy supplies, with gas and power prices breaking records day after day. The continent is running out of time to refill storage facilities before the start of the winter as flows from top suppliers Russia and Norway remain limited. There’s also a fight for shipments of liquefied natural gas, with Asia buying up cargoes to meet its own demand.
The crisis could have severe economic consequences. Soaring prices are exposing the risk of power outages this winter, according to Goldman Sachs Group Inc. Blackouts would likely send energy prices even higher, compounding concerns about inflation and adding to the rising costs businesses are already shouldering for raw materials.
CF has so far taken the most drastic move of companies operating in the region, but others are warning of the likely blow-back.
High energy prices are creating “inflationary pressure on every other cost” that will end up being passed on to customers, said Pascal Leroy, senior vice-president of core ingredients at Roquette Freres SA, a food processing company based in northern France. And France’s top sugar producer, Tereos, warned of surging natural gas prices raising production cost for the company “tremendously.”
Europe’s energy markets are also just the latest example of the toll that soaring commodity prices are having on the global economy. Tight supplies of everything from aluminium to grains to oil have sparked concerns over a lasting run for inflation. Higher costs for heating homes will bite into consumer wallets at a time when they are also paying more food and many are still struggling from the pandemic’s economic fallout.
Benchmark natural gas prices in Europe and the UK have tripled this year. The crunch worsened on Wednesday after a fire knocked out a key power cable connecting Britain to its top electricity supplier France, boosting gas demand for electricity production within the UK
Gas prices fell as much as 10% and power prices dropped almost 6% Thursday before paring declines.
For CF, shutting down these plants, which largely produce ammonium nitrate, will cause the company to lose some production volume, according to Alexis Maxwell, an analyst at Bloomberg Intelligence. The bigger potential impact will likely be on global pricing for fertiliser as concerns grow that other producers will follow suit, she said.
“The market will read this as other European producers are likely to shut down, and nitrogen prices will continue to rise on the supply-side shortage,” Maxwell said.
Fertiliser prices are already high, and that’s adding to increasing expenses for farmers, who are paying more for everything from land and seeds to equipment. The higher costs of production may mean even more food inflation is on the way.

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