Skyrocketing energy price endangers the companies

Who hasn’t heard about the “surge in raw material prices” in the last few years? This long-debated issue has been causing further concerns, since the prices of electrical energy and of natural gas have had a significant rise. What’s the situation which companies are facing, including those producing copper based alloy ingots like RMG?

Let’s start with an overview. In 2021, we analysed a few times the economic scenario and the trends of non ferrous metals at the base of our production of bronze ingots. We also focused on the criticalities which were born after the Covid-19 pandemic. First among everything, the shortage of the main industrial commodities and their soaring prices, which originated from tangible, financial and logistical causes.

Furthermore, in our report of the 36^th edition on Scenari & Tendenze (lit. Scenarios & Trends), we spoke briefly about the extraordinary increase in the price of energy. This new criticality only added to the already difficult situation for companies, making it even worse mainly for those using a huge amount of energy to power their production lines. That’s why we are going to delve into this topic.

Rise in price of energy: the alert issued by the companies

Companies crusading against the surge in energy prices: «without assistance we will be forced to close»
(taken from the Giornale di Brescia, Tuesday 28^th December 2021, front page, year 76, no. 356)

The rise in prices of energy puts companies at risk of blackouts
(taken from the Messaggero Veneto, Tuesday 28^th December 2021, page 10)

These are just two of the many news headlines which were published at the end of 2021 in Italian daily newspapers, but the news item was always the same: companies working both in the manufacturing and in the iron and steel industry are put at risk of closure due to energy prices. At the end of December 2021, the entrepreneurs of Brescia, whose companies work in energy-intensive industries, issued an alert. 

Furthermore, they requested the intervention of the state government since the price of energy, if compared to January 2020, had undergone an increase of 650%. Their aim? Avoiding the inevitable:

• The closure of many production plants due to unsustainable energy costs;
• The resulting negative impact of such closures on the social and economic system.

The nature of this unprecedented situation is interesting, considering that the danger is not of a lack of demand, but of working at a loss due to skyrocketing energy prices.

This is how 2021 came to an end. What are the developments of such a scenario at the beginning of 2022? Let’s see them together.

2022 and energy quotation: scenario and forecast for the metal industry

At the beginning of 2022, the prices of electrical energy and natural gas are still increasing, forcing many companies to stop their production lines or to postpone their reopening after the holidays. We would like to focus on Brescia, where many industries are strongly affected by these circumstances due to their historical energy-intensive production. This scenario is shown in the interview with Achille Fornasini published on 14^th January 2022 in the daily newspaper Giornale di Brescia.

We would like to focus on information about the metal industry, since also our production of bronze, aluminium bronze and other copper based alloys is part of it. This industry is put at increased risk of production stops due to these unprecedented quotations, with consequences also on workers and their families.

Achille Fornasini, professor at the University of Brescia, explains that natural gas is at the base of the creation of electrical energy and for six months we have been devastated by an “energy earthquake” caused by natural gas. As stated during the interview, the gap between the supply and the demand of natural gas, combined with the anxieties caused by the shortage of gas and the use of derivative financial instruments [...] have turned market dynamics upside-down. The mixture of these factors has led to an extraordinary volatility of electrical energy prices, which underwent an increase of 788.5% at first, followed by a correction of 46% at the end of 2021. As a consequence, the Italian PUN (lit. The national single price) of electrical energy was affected as well with an increase of +711%.

The outlook? Achille Fornasini explains that the latest decrease in gas quotations is due to the arrival from the United States of vessels carrying liquefied gas, but good effects could be visible from March or April, when bills will be recalculated considering current prices. As the Professor states, this positive forecast doesn’t relieve in the short term the pressure of energy prices either on families or companies, which are still suffering because of the striking quotation of energy, risking also production stops due to these unsustainable prices.

State intervention would be necessary in such a situation, but the highest hope is the short-term consent to opening the new gas pipeline North Stream 2.

The next edition of Scenari & Tendenze organised by Confindustria Brescia will certainly provide further details and information concerning this issue as well. If you want to keep up-to-date, follow us and read our next news.

Source:

• Nuri Fatolahzadeh,Caro energia, a rischio anche i posti di lavoro. Le aziende: "Costi folli, così dovremo chiudere", Giornale di Brescia, 28^th December 2021, page 2
• R. Raga, interview with Achille Fornasini, professor at the University of Brescia:C’è una speculazione sull’energia: tra marzo e aprile il calo dei prezzi, Giornale di Brescia, 14^th January 2022, page 27