European Factories Closing Due to Skyrocketing Electricity Costs

Reduced Russian Gas Supply Drives Electricity Price Surge... Aluminum and Zinc Plants Halt Operations
Fertilizer Production Declines, Raising Concerns Over Food Price Inflation... Germany Faces Vaccine Glass Bottle Supply Disruptions

[Asia Economy Senior Reporter Cho Young-shin, Reporter Park Byung-hee] As electricity prices soar due to Russia's reduction in gas supply, factories across Europe are shutting down operations one after another. The worsening supply shortage caused by factory shutdowns is raising concerns that it will further fuel already sharply rising inflation.

According to Bloomberg News on the 17th (local time), Slovakia's largest aluminum producer Slovalco announced plans to halt production until the end of September. Slovalco produces 175,000 tons of aluminum annually. Slovalco explained that due to the surge in electricity prices, continuing factory operations would result in significant financial losses.

The reason for the rise in electricity prices is the sharp increase in natural gas prices, a major fuel source for power generation in Europe, caused by Russia's supply cuts. On the same day, the September delivery futures price for natural gas on the Netherlands TTF exchange rose 4.8% from the previous day, closing at 227 euros per megawatt-hour (MWh). Current gas prices are about 13 times the average price over the past 10 years.

Slovalco is a subsidiary of Norwegian energy company Norsk Hydro. To make matters worse, Norsk Hydro announced that its Sundal aluminum smelter in Norway will reduce production for four weeks starting from the 22nd due to a strike, resulting in about a 20% decrease in output.

The day before, Belgium's zinc smelting company Nyrstar announced it would halt operations at its zinc smelting plant in Budel, Netherlands, starting from the 1st of next month. Although zinc futures prices on the London Metal Exchange (LME) had recently declined due to concerns over a global economic downturn, they have been rising again since the end of last month.

Fertilizer plants are also increasingly suspending operations. According to Bloomberg, due to soaring electricity prices, ten fertilizer plants in Europe either halted production or began reducing output in July alone.

Raw material market analysis firm CRU Group estimated that the consecutive shutdowns of fertilizer production plants have reduced Europe's nitric fertilizer production capacity by at least 25%. CRU Group predicted that ammonia prices will continue to rise, noting that importing ammonia, the raw material for nitric fertilizer, is cheaper than producing it in Europe.

The International Fertilizer Association (IFA) forecasted that farmers could reduce fertilizer use by up to 7% in the next harvest season, marking the largest decline since the 2008 global financial crisis.

IFA particularly expects fertilizer use to be most severely impacted in Sub-Saharan Africa, with reductions of up to 23%. Reduced fertilizer use could decrease agricultural and livestock production, leading to higher food prices. This increases the cost of living and raises the risk of hunger in impoverished countries.

There are also concerns that natural gas supply issues could affect the distribution of COVID-19 and monkeypox vaccines. This is due to fears of reduced supply of vials (glass bottles) used to contain vaccines.

China's state-run Global Times reported that Russia's reduction of natural gas supply to Europe to 20% of pipeline capacity has put European vaccine vial manufacturers in crisis. The outlet cited a German local media article (thelocal.de) titled "Gas crisis pushes German glassmakers to the brink," stating that the pharmaceutical and medical industries, including vaccine vial production, could be directly hit.

The report mentioned German company Schott as a representative example. Schott is the world's largest glass manufacturer, holding over 50% of the global vaccine vial market share. The article explained that products like vaccine vials, made of neutral borosilicate glass, require extremely high temperatures of 1500 to 2000 degrees Celsius, with natural gas as the primary energy source.

A company representative was quoted by Global Times as saying, "We are experiencing an unprecedented situation," and "If gas supply is cut off, we cannot produce vials."

Global Times noted that shortages have already begun for some special glass products, explaining that if production lines stop, it would take at least several months to up to two years to rebuild. It warned that if gas supply is interrupted, vial shortages could disrupt global vaccine supply.

This content was produced with the assistance of AI translation services.