Markets
Europe’s Energy Crunch Is Forcing U.K. Factories
to Shut Down
By
Elizabeth Elkin and Isis Almeida
15
September 2021, 23:03 CEST Updated on 16 September 2021, 11:23 CEST
U.S. fertilizer
maker CF Industries shuts two U.K. plants
Other companies
have warned of inflationary pressures
Europe’s
energy crunch has forced a major fertilizer maker to shut down two U.K. plants,
the first sign that a record rally in gas and power prices is threatening to
slow the region’s economic recovery.
CF
Industries Holdings Inc. said Wednesday it’s halting operations at its
Billingham and Ince manufacturing complexes due to high natural gas prices,
with no estimate for when production will resume. European gas and power
futures tumbled Thursday on signs energy-intensive industries are curbing
consumption.
The move
comes as Europe is facing an extreme squeeze for energy supplies, with gas and
power prices breaking records day after day. The continent is running out of
time to refill storage facilities before the start of the winter as flows from
top suppliers Russia and Norway remain limited. There’s also a fight for
shipments of liquefied natural gas, with Asia buying up cargoes to meet its own
demand.
The crisis
could have severe economic consequences. Soaring prices are exposing the risk
of power outages this winter, according to Goldman Sachs Group Inc. Blackouts
would likely send energy prices even higher, compounding concerns about
inflation and adding to the rising costs businesses are already shouldering for
raw materials.
CF has so
far taken the most drastic move of companies operating in the region, but
others are warning of the likely blow-back.
High energy
prices are creating “inflationary pressure on every other cost” that will end
up being passed on to customers, said Pascal Leroy, senior vice-president of
core ingredients at Roquette Freres SA, a food processing company based in
northern France. And France’s top sugar producer, Tereos, warned of surging
natural gas prices raising production cost for the company “tremendously.”
U.K.’s
Record-Breaking Energy Crunch Explained in Five Charts
Europe’s
energy markets are also just the latest example of the toll that soaring
commodity prices are having on the global economy. Tight supplies of everything
from aluminum to grains to oil have sparked concerns over a lasting run for
inflation. Higher costs for heating homes will bite into consumer wallets at a
time when they are also paying more food and many are still struggling from the
pandemic’s economic fallout.
Benchmark
natural gas prices in Europe and the U.K. have tripled this year. The crunch
worsened on Wednesday after a fire knocked out a key power cable connecting
Britain to its top electricity supplier France, boosting gas demand for
electricity production within the U.K.
Gas prices
fell as much as 10% and power prices dropped almost 6% Thursday before paring
declines.
U.S.
Fertilizer Prices Soar as Storms Roil Industry Hub
For CF, shutting
down these plants, which largely produce ammonium nitrate, will cause the
company to lose some production volume, according to Alexis Maxwell, an analyst
at Bloomberg Intelligence. The bigger potential impact will likely be on global
pricing for fertilizer as concerns grow that other producers will follow suit,
she said.
“The market
will read this as other European producers are likely to shut down, and
nitrogen prices will continue to rise on the supply-side shortage,” Maxwell
said.
Fertilizer
prices are already high, and that’s adding to increasing expenses for farmers,
who are paying more for everything from land and seeds to equipment. The higher
costs of production may mean even more food inflation is on the way.
“We
wouldn’t be surprised to see more nitrogen and chemicals production across
Europe idled in the coming days until gas prices moderate,” Joel Jackson, an
analyst at BMO Capital Markets, said in a report.
What’s
Behind Europe’s Skyrocketing Power Prices: QuickTake
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