From Buddhist Tableware to German Toilet Paper... European Factories Struggling with Energy Costs

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] The rise in energy prices due to the Ukraine war is impacting manufacturing plants of European companies, from French tableware makers to German toilet paper manufacturers. Although recent gas prices have peaked and begun to decline, leading to analyses that Russian President Vladimir Putin’s ‘energy offensive’ is faltering, on the ground, measures such as temporary layoffs and production line shutdowns are continuing due to already significantly increased energy costs. There are concerns that the shock could intensify ahead of winter.

According to the New York Times (NYT) on the 19th (local time), Arc International, the world’s largest glass tableware manufacturer based in France, recently temporarily laid off one-third of its 4,500 employees and decided to keep four of the nine furnaces used in the factory idle. For the furnaces that remain operational, the company decided to switch from natural gas to diesel despite environmental pollution, choosing cheaper energy. Nicolas Hodler, CEO of Arc, said, “This is the most dramatic situation we have faced,” adding, “Energy-intensive companies like ours are suffering serious damage.”

Arc produces 4 million glass cups daily, operating its furnaces 24 hours a day. This summer, as Europe suffered a power crisis, Arc’s energy costs soared fourfold from $19 million (about 2.64 billion KRW) a year ago to $75 million this year. Coupled with a decline in product demand due to rising inflation and other effects, a hit to performance became inevitable.

This situation is not unique to Arc. Other European factories are also struggling with cash flow due to rising energy prices. ArcelorMittal, Europe’s largest steel company, is currently not using its furnaces in Germany. Alcoa, a global aluminum product manufacturer, has reduced production at its Norwegian furnaces by about one-third. Even Germany’s toilet paper manufacturer Hakle announced it had become insolvent due to the ‘historic energy crisis.’ Following these repeated factory operation impacts, Europe’s industrial production in July fell 2.3% year-on-year, marking the largest decline in over two years.

[Image source=Reuters Yonhap News]

Recently, some have predicted that energy prices have peaked and are turning downward, and that Europe is finding alternatives, which would limit Russia’s energy offensive. However, the reality faced by European companies is harsh.

The NYT pointed out that although the European Union (EU) recently introduced measures to reduce consumer burdens in response to the sharp rise in energy prices, the pace is slow. On the 15th, Ursula von der Leyen, President of the European Commission, announced plans to collect 140 billion euros from power companies and gas and oil firms through windfall taxes to alleviate consumer burdens in member states caused by the energy shortage this winter. The NYT reported, “Prices have already soared beyond what many manufacturers can bear,” adding, “Tens of millions of European companies have contracts made when energy was cheap that are nearly expired, and they must renew them at current prices in October.”

Rolf Probaine, an executive at Eschenbach Porcelain, a tableware manufacturer in Thuringia, eastern Germany, told the NYT that the company survived the transition from communism to capitalism in Germany since 1989, but when its annual energy contract expires at the end of this year, it will face a bill six times higher at 5.5 million euros. He explained the difficult situation, saying, “That means we would have to raise product prices by more than double, and if that happens, no one will buy our products.” He also said discussions are underway with local politicians to find solutions.

As a result, companies are taking measures such as temporarily laying off employees or partially reducing production lines. Aluminum Dunkerque, France’s largest aluminum manufacturer, temporarily laid off some of its 620 employees and cut production by more than 20%.

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