scorecardresearch

Why ArcelorMittal, other metal giants are shutting factories amid Europe energy crisis; here’s what lies ahead

The world’s second-largest steel producer ArcelorMittal recently announced the closure of a factory in Europe as a result of rising gas and energy prices in the region.

Why ArcelorMittal, other metal giants are shutting factories amid Europe energy crisis; here’s what lies ahead
ArcelorMittal said that high energy costs and weaker demand make production uneconomic

The world’s second-largest steel producer ArcelorMittal recently announced the closure of a factory in Europe as a result of rising gas and energy prices in the region. By the end of September, the company will shut down one of the two existing blast furnaces at its steelworks plant in Bremen of Germany due to outrageously high surge in energy prices, weak market demand and a negative economic outlook. ArcelorMittal said that high energy costs and weaker demand make production uneconomic. “The exorbitant rise in energy prices is having a massive impact on the competitiveness of steel production. This is compounded by weak market demand and a negative economic outlook,” it said in a statement.

ArcelorMittal is not the first company to shut a factory in Europe. The crisis started when Russia shut down a big gas pipeline indefinitely. Russia has used its control of gas supplies to exert pressure on European countries in retaliation against sanctions imposed on it amid war with Ukraine. Gazprom, the Russian state-controlled gas company, closed the Nord Stream 1 pipeline from Russia to Germany, saying it had found a leak requiring repair. Russia squeezing gas shipments to Europe has pushed energy costs in the region, crippling heavy industries that are already receiving fewer orders from manufacturers and builders which are also being hit. 

Also Read: IBM speaks up on moonlighting after Infosys, Wipro, other tech giants warn employees; says this on second jobs

Metal production hit amid rising energy costs; companies shut smelters, blast furnaces

Power- and gas-intensive sectors such as steel, fertilizers and aluminum are being forced to close factories or pass on soaring costs to customers. Several European stainless steel mills are closing due to the energy crisis. Last month, the Belgian Aperam Mill shut down its mill in Genk. Soon after, they reduced production at their Chatelet Mill. Spanish company Acerinox announced it would cut production and place around 85% of its employees on short-time work. According to a Bloomberg report, European production has dropped to the lowest levels since the 1970s. Aluminum smelters in the region have also started closing recently due to exorbitant energy costs.

Europe’s largest aluminum smelter has also said that it will reduce production by 22%. Aluminium Dunkerque Industries France began shutting down a portion of its production pots this Monday. The process will be completed October 1. Note that in the aluminum industry, closing a smelter is an excruciating decision which can cost companies millions of dollars and dent profits. “Once power is cut and the production “pots” settle back to room temperature, it can take many months and tens of millions of dollars to bring them back online,” Bloomberg said in a report. As Aluminium production drops, the hundreds of European manufacturers that turn the metal into parts for German cars or French planes will be left increasingly reliant on imports. This, in turn, could drive up the costs.

Also Read: India’s WPI inflation eases to 12.41% in Aug, wholesale price remains in double digits for 17-months straight

A survey conducted by the Association of German Chambers of Industry and Commerce (DIHK) showed that at the end of July, one out of every six industrial enterprises in Germany feels compelled to cut production as a result of high energy prices. About 25% of 3,500 enterprises polled from all industries and areas in Germany, who were compelled to scale back output had done so by the end of July, and 25% are in the process of doing so. Meanwhile, 32% of businesses expect to restrict production or have already begun doing so, including stopping entire production lines.

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.