There was a detailed article in Monday’s Wall Street Journal discussing the many factories in Europe that are closing their doors because of the high gas and electricity prices. The danger here is not simply that they will shut down but that many may never re-open because the cost of restarting a shuttered aluminum, steel, or glass plant can be up to €90 million.
When plants don’t re-open, jobs don’t come back. This will hurt the economy and could signal the end of some factory towns.
It was the low price of fuel that kept European manufacturers of metals, ammonia, fertilizer, and other goods competitive with manufacturers in markets with lower wages, including the U.S.
Here are a few more points from the article.
- A ton of aluminum sells for about €2,500 Euros, but it costs €9,000 to produce due to high energy costs. Companies are shutting down and laying off employees rather than selling at that steep a loss.
- Without steel, aluminum, and glass, the entire European automobile industry and many others are in danger of failing. As the article says, “Complex supply chains in sectors such as the auto and food industries are getting gummed up, adding to inflationary pressures just as pandemic snarl-ups show signs of easing.”
- Producing sugar also consumes natural gas. While the companies are pursuing other power sources, if they are not able to do so, most of the sugar beet harvest will be left in the ground to rot.
- Zinc stockpiles in Europe have almost run out.
- Europeans will be forced to import sugar, ammonia, and metals, driving up prices elsewhere.
They were Warned
What the article doesn’t mention is that Europe ignored warnings from Donald Trump and others not to make itself dependent on Russian energy. Much of the blame for failing to diversify lands on the shoulders of Angela Merkel. Germany will feel the pain of these shutdowns, but so will France, Italy, Slovakia, Norway, and other EU members.
It may be impossible to bounce back from the damage being wrought on Europe manufacturing industry.
Published 9/12/2022. Link to full article. (Subscription may be required.)