Soaring gas prices push Europe’s ceramics industry to breaking point

  • High Gas Prices Overshadow Post-COVID Recovery
  • Some businesses face closures despite growing order books
  • Gasoline prices have risen more than 300% this year
  • Final quarter could see bloodbath – industry official

MILAN, Oct 27 (Reuters) – Continental Europe’s $35 billion ceramics industry thought the worst was over when sales jumped more than 10% in the first half and order books began to shrink. fill up after the damage inflicted by the pandemic.

But soaring gas prices have caught up with companies in an energy-intensive business, leaving them to choose between passing on rising costs to customers and reducing or stopping production. And all this at a time when many feel the costs of the energy transition are already hurting them.

Iris Ceramica Group, based in the central region of Emilia-Romagna and one of Italy’s leading manufacturers in the sector, had to introduce a 3% energy surcharge on bills to help cushion the blow.

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The reception was mixed.

“Some customers realize that we have done our best to limit price increases but others, especially large bulk buyers, interpret the contracts literally and ask for a pre-warning period,” says the company. CEO Federica Minozzi.

It was Minozzi’s father, Romano, who first persuaded gas transmission group Snam (SRG.MI) to bring its network to the region in the 1980s, launching Italy’s “Tile Valley” district. .

Now his daughter is planning to build the industry’s first green hydrogen ceramic plant, powered by a rooftop solar plant. The project, launched before the gas price explosion, is easier to justify in the face of rising gas prices.

“Indeed, given recent developments, production could become economically competitive faster than we thought,” Minozzi said.

The European ceramics industry uses gas to light the kilns and maintain 200,000 direct workers in employment. Energy bills typically account for up to 20% of overhead costs.

With no short-term solution in sight, the last quarter of the year could turn into a bloodbath, warns Giovanni Savorani, president of Italian federation Confindustria Ceramica.

“It’s a total disaster. There are companies that risk shutting down production and sending workers home because they can’t balance their books,” Savorani told Reuters.

Italy, which along with Spain dominates the ceramics trade in Europe, has invested more than 2 billion euros ($2.3 billion) in six years in new materials and technologies to help it compete cheaper production from China, India and Turkey.

After the headwinds of COVID-19, demand in the tile sector has returned with revenues in Italy in the first half up 12.3% compared to the same period in 2019. But the rise in order books does not cannot track the impact of energy costs.

“I’m thinking of stopping things in January because I can’t produce at these prices and make a profit,” said Savorani, who owns his own business.

CHEAPER RIVALS

Natural gas prices have soared 300% this year to record highs in Europe and parts of Asia as economies recover from the COVID-19 pandemic and energy consumption increases faster than the offer.

The increases have prompted energy-intensive industries like ceramics to revise their production to cope with a trend that is disrupting supply chains and risks fueling inflation.

Jose Luis Lanuza, chief executive of Spain’s Keraben Group, used to look at gas prices once or twice a year, to help decide how to structure contracts for his wall and floor tile business.

“Now I watch the gas every day, hoping it goes down,” he said. “We have no other source of energy. We have to buy gas.”

In September, Keraben, owned by Victoria Plc (VCP.L), spent seven million euros lighting its 140-meter-long kilns, compared to a monthly average of two million euros last year.

It is now considering partial shutdowns in December, potentially reducing production temporarily by around 50% and bringing forward next year’s vacation for employees.

“It could end up with production elsewhere, outside of Europe,” Lanuza said, citing Turkey, Poland, Vietnam and Mexico as potential alternatives.

“We are already considering investing outside of Europe. It hurts me but that’s what I have to do.”

Geert-Jan Starting, who runs a 165-year-old brick factory in the Netherlands, compares the crisis to the First World War, when an interruption in Britain’s coal supply to the Netherlands led to a wave of bankruptcies.

The company survived two world wars and the transition from peat to coal and then to natural gas in the 1960s. But it must now tell its customers that it can no longer offer them a price guarantee in a context market volatility.

“I didn’t see this coming a few months ago, three or four times the price increases, and if you ask me what lies ahead, I have no idea.”

($1 = 0.8593 euros)

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Reporting by Stephen Jewkes and Elvira Pollina in Milan, Isla Binnie in Madrid, Anthony Deutsch in Amsterdam; Editing by Keith Weir and Emelia Sithole-Matarise

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