Industries facing the global energy crisis

The energy crisis is getting worse and worse. This has put great pressure on the commodity market, which provides an important foundation for the recovery and development of the global economy.

Energy-intensive sectors such as steel, fertilizer, and aluminum smelting (the most widely used base metal), are being forced to reduce output. Some factories even had to close or increase selling prices due to rising costs. Crucial materials used to make electric vehicle batteries and solar cells are also having a hard time.

Commodity market turmoil is leaving households grappling with the worst cost-of-living crisis in decades and pushing economies into recession. When gas supplies are affected, the market becomes even tighter.

Industrial Metals

Europe has lost about half of its smelting capacity in the past year. Some factories have even been forced to close.

At the beginning of August, the Slovakia-based aluminum producer announced that it would temporarily close at the end of September due to high electricity prices. Earlier, Budel, one of Europe’s largest tin smelters, also announced a halt in production starting from September 1. With unbelievably low domestic stocks, people may have to rely more on imports to meet demand.

Inventories of aluminum and zinc in Europe drop sharply in 2022.

The aluminum industry in Sichuan, one of China’s most populous provinces, is also affected by power shortages due to heat and prolonged drought. This forced aluminum smelter Henan Zhongfu Industry Co. forced to suspend operations for 1 week with some workshops.

Metallurgical companies in the US were also hit hard when earlier this year Century Aluminum Co. announced the closure of a large aluminum manufacturing plant in Kentucky due to soaring energy costs, resulting in a loss of business.

Meanwhile, copper producing companies are less affected by this crisis as they consume less energy than other metallurgical industries. However, they still bear a large surcharge when shipping goods to customers.

Steel

Power cuts in China’s Sichuan have affected more than 70% of the province’s steel mills as they have had to suspend production or reduce capacity. That is putting pressure on the price of iron ore, the main raw material for steel production.

In Europe, British Steel is one of the companies that have to raise steel prices to offset rising energy costs. While that has worked in the past due to Europe’s robust construction sector, it will be more challenging this time around as a weaker economy dampens the demand outlook.

In the US, at least two steel mills have begun suspending some operations to cut energy costs.

Materials for battery production

China’s energy crisis means the battery industry will have to bear the brunt of the rising cost of its main raw material, lithium.

It also plays an important role in the production of polysilicon, which is used in solar panels. The price of silicon metal, which is used to make computer chips, phones and cars, has increased by 12% in just one week.

Fertilizer

Europe’s ammonia production capacity continues to plummet as two Polish companies recently joined a growing list of fertilizer producers forced to cut output because of rising energy costs high.

Source: GrowVeg

Grupa Azoty, Poland’s largest chemical company, has cut ammonia production due to record gas prices, while Anwil, a subsidiary of oil and gas firm PKN Orlen SA, has stopped production.

This means that about 38% of Europe’s capacity to produce the most important ingredient in fertilizers has now been reduced or completely cut, according to Chris Lawson, an analyst at CRU Group.

“This is only a confirmed decrease,” Lawson said by email to Bloomberg. “The actual reduction could be even higher.”

More companies in Europe are expected to announce production cuts soon as the cost of natural gas has increased by 500% from a year ago. Ammonia supplies will continue to decline if Russian natural gas is completely cut off. German authorities have voiced concerns about the need for gas distribution in the final months of this year.

The big trouble for European fertilizer producers is an opportunity for competitors outside the region. Mosaic Co, a US-based plant nutrient supply company, said it will continue to produce to meet global demand and is committed to selling fertilizers at attractive prices.

“The price of natural gas and other raw materials used in fertilizer production has increased. Fertilizer prices have also increased. We will continue to produce as much fertilizer as possible to meet the needs of farmers. globally,” said a representative of Mosaic.

Street

European sugar giant Suedzucker AG, has warned prices could be higher because of rising energy costs. At the same time, the corporation said it plans to switch from incineration to other energy sources if Russia stops the flow.

Food prices peak in 2022.

But analysts say it can be a costly process and sugar prices are even higher, adding to the bill of goods after global food prices hit record highs.

Source: CafeF