Written by 4:16 pm Europe Economy

Fears of economic deindustrialization are growing in Germany

Europe’s industrial hub faces a potential exodus as German manufacturers of car parts, chemicals and steel struggle to cope with electricity prices that soar to new highs almost every day, Bloomberg wrote.

Electricity and gas prices in Germany have more than doubled in just two months, and the cost of electricity for the year ahead – a benchmark for the continent has surpassed 540 euros per megawatt hour. Two years ago, the amount was 40 euros.

Energy inflation is much more dramatic there than anywhere else, said Ralf Stoffels, chief executive officer of BIW Isolierstoffe GmbH, a manufacturer of silicone parts for the automotive, aerospace and household industries. He fears a gradual deindustrialization of the German economy.

The country relied on gas from Russia to power its power plants and factories, but now it is preparing for the unprecedented task of keeping the lights on and businesses running after Russia cut those flows.

Prices are now showing an even steadier rise, which is tightening the pressure. The price of European gas for next month will reach a record high of 241 euros per megawatt hour, about 11 times higher than usual at this time of year.

While the government is somewhat limiting the increases faced by households, businesses are not immune to these rising costs.

Prices are a heavy burden on many energy-intensive companies competing internationally, said Mathias Ruch of Evonik Industries AG, the world’s second-largest producer of chemical products with plants in 27 countries.

The company is replacing up to 40 percent of its natural gas volumes in Germany with liquefied petroleum gas and coal, and shifting some of the higher costs to customers. But the idea of a move doesn’t make sense, a spokesman said.

Still, there is evidence that Germany’s industrial situation is worsening. In the first six months of this year, chemical imports were up about 27 percent over the same period last year, according to government data from the consulting firm Oxford Economics. At the same time, chemical production fell, down nearly 8% in June compared to December.

Last month, the International Monetary Fund said Germany would be the worst performer in the G7 this year because of the industry’s reliance on Russian natural gas.

Europe’s largest copper producer, Hamburg-based Aurubis AG, is seeking to minimize gas consumption and shift energy costs to consumers, CEO Roland Haringis said.

BMW AG is stepping up preparations for potential shortages. The Munich automaker operates 37 gas-fired plants that generate heat and electricity at plants in Germany and Austria and is considering local utilities instead.

Packaging firm Delkeskamp Verpackungswerke GmbH plans to close its paper factory in the northern town of Northrup because of high energy costs, with 70 workers losing their jobs.

Continued increases in energy prices could change the continent’s economic landscape, said Simone Tagliapietra, a senior researcher at Bruegel, a Brussels-based think tank. Some industries will be under serious stress and will have to rethink their production in Europe, he said.

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