Europe’s energy crisis is forcing factories into darkness
The blast furnace, heated to 1,500 degrees Celsius, glowed red. workers at the Arc International Glasfabrik loaded it with sand, which slowly collected into a molten mass. Near the factory, machines used a blast of hot air to transform the amorphous liquid into thousands of delicate wine glasses, which were sold to restaurants and homes worldwide.
Nicholas Hodler, the chairman of the board, watched the assembly line shimmering blue with natural gas flames. Arc ran on cheap energy for years, which helped make the company the world’s largest manufacturer of glassware – and a major employer in this working-class region of northern France.
But the impact of Russia’s abrupt disruption of gas supplies to Europe has thrown new risks at the deal. Energy prices have risen so rapidly that Mr. Hodler has had to rewrite business forecasts six times in two months. He recently put a third of Arc’s 4,500 employees on part-time leave to save money. Four of the factory’s nine furnaces are shut down; the others will switch from natural gas to diesel, a cheaper but more polluting fuel.
“This is the most dramatic situation we have ever experienced,” said Mr. Hodler, shouting to make himself heard over the clinking of glasses. “For energy-intensive companies like ours, it’s crippling.”
Arch is not alone. High energy prices are hitting European industry, forcing factories to quickly scale back production and send tens of thousands of workers on vacation. Although the cuts are expected to be temporary, they increase the risk of a painful recession in Europe. Industrial production in the euro zone fell by 2.3 percent year-on-year in July biggest drop in more than two years.
Manufacturers of metal, paper, fertilizer and other products that rely on gas and electricity to turn raw materials into products from car doors to boxes have announced they will tighten their belts. Half of the European aluminum and zinc production was therefore taken off the grid EurometauxEurope’s trade association for metals.
Among them Arcelor Mittal, Europe’s largest steel manufacturer, which is shutting down blast furnaces in Germany. Alcoa, a global manufacturer of aluminum products, is cutting production at its smelter in Norway by a third. In the Netherlands, Nyrstar, the world’s largest zinc producer, is halting production until further notice.
Even toilet paper is not immune: In Germany, Hakle, one of the largest manufacturers, announced that it had fallen into insolvency due to a “historic energy crisis”.
The hurricane has unsettled residents of Arques, a town whose fortune has been tied to glassmaking for more than a century. Today’s Arc was founded in 1825 as Verrerie Cristallerie d’Arques, then a small local maker of fine crystal goblets.
Today, Arc’s activities are vast, covering an area almost half the size of New York’s Central Park. Its bulk is such that Arc indirectly creates another 15,000 or so jobs in the area, from carton factories that package its glass to trucking companies that move its products. Arc’s other factories are located in China, Dubai and New Jersey.
“The shutdown of the furnaces is bad news,” said one worker, a 28-year veteran at the factory, who spoke on condition of anonymity for fear of jeopardizing his job. “Sure, high energy prices are having an impact,” he added, “but it’s scary how quickly that’s happening.”
In a sense, the crisis is a backlash from European sanctions designed to punish Moscow for its invasion of Ukraine. The pain has undermined European business confidence and predictability.
But the solutions may not be fast enough. Costs have already risen beyond what many manufacturers can afford. Thousands of European companies are nearing the end of their energy contracts, which were signed at cheaper prices, and will have to renew them at current prices in October. Annual electricity prices, which are tied to gas costs, are around 1,000 euros per megawatt hour in Germany and France, while natural gas is at record highs of around 230 euros per megawatt hour.
Eschenbach porcelain survived Germany’s transition from communism to capitalism after 1989. But when the energy contracts expire at the end of this year, the company will face annual energy bills of 5.5 million euros, about six times what it is paying now, Rolf Frowein said. its director.
“That would mean we’d have to more than double our prices, and nobody pays that for our cups and plates,” he said. Eschenbach, a 130-year-old company in eastern Thuringia, is in talks with local politicians about a possible solution. It is one of dozens of small and medium-sized companies in Germany that fear closing for good.
An hour north of the Arc factory, Aluminum DunkirkFrance’s largest aluminum producer, will furlough some of its 620 employees and cut production by more than 20 percent as it faces a potential four-fold increase in its energy bills.
“The time we spend dealing with energy issues has increased tenfold,” said Guillaume de Goÿs, CEO. “We hope the crisis will be short-lived, but if it continues, European industry will be in deep trouble.”
Mr. Hodler is scrambling to steer Arc out of trouble following years of financial difficulties related to over-expansion and more recently pandemic lockdowns. In December, shortly after Mr Holder took over the company as part of a management reshuffle, Arc received a €45 million French state-backed emergency loan and is now asking the government for additional relief from high energy bills.
The site, which uses as much energy as 200,000 homes, produces ‘Arts de Table’ including Luminarc dinner plates and Cristal d’Arques brand table and barware. In total, Arc produces four million pairs of glasses per day, as well as items such as candle holders for Bath & Body Works and promotional glasses for Heineken and McDonald’s.
This requires intense heat to melt sand into glass in furnaces that must be left on 24 hours a day. In the summer, Europe’s power shortages drove Arc’s energy bill to $75 million, up from €19 million a year earlier. In addition, consumers suddenly stopped buying items such as candle holders and washing machines that Arc makes glass windows for and started placing orders.
“People worry about their winter energy bills and say, ‘I’m going to wait until I buy this unnecessary item,'” said Mr. Hodler.
The double whammy left Arc’s management team looking for solutions — all less than desirable.
This month, 1,600 workers were told to stay home two days a week to cut costs. And for the first time, Arc’s furnaces will be converted to diesel power instead of natural gas, which is piped directly to the factory. The diesel increases Arc’s carbon footprint by 30 percent and has to be delivered in bulk by tanker.
Even more frightening was the prospect of idle Arcs furnaces. “You can’t just turn off a glass furnace, that would destroy it,” Hodler said. “If they’re gently shut down, they’ll survive, but then they take more than a month to warm up again.”
Two furnaces that were earmarked for planned maintenance could now remain out of service for the foreseeable future, Mr Hodler said. Two more will be temporarily mothballed to compensate for the fall in demand.
“We don’t want to shut down operations completely,” Hodler said. “But we won’t produce if we lose money.”
All of this worries the locals in Arques. At Le Cristal, a café that’s a meeting place for Arc factory workers, the fate of the blast furnaces was all that was talked about in an afternoon.
“Arc is the lifeblood of this region,” said Valerie Harle, owner of the café, which opened in 1939 and is named in honor of Georges Durand, who grew the Cristallerie d’Arques from a small factory to an empire. “If the ovens don’t work, neither do the employees.”
Veronique Cognoti, a longtime resident, said locals were bracing for a knock-on effect. “A lot of other companies depend on it,” she said of the factory. “Transport companies, carton manufacturers – they will all feel the blow.”
At a table nearby, a man who spoke on condition of anonymity said he was furloughed from work at a nearby carton factory that makes boxes and packaging for Arc earlier this month after the glassmaker halted production .
“With current energy prices, the factory isn’t working as much as it used to and is already setting off a chain reaction,” he said.
He was paid 80 percent of his salary to stay home while his factory shut down, but that added up to $150 in lost wages. At the same time, the petrol bill for his small car has risen from around 50 euros at the beginning of the year to almost 100 euros.
“It’s going to be a much bigger problem,” he said.
Melissa vortex contributed reporting from Berlin.
https://www.nytimes.com/2022/09/19/business/europe-energy-crisis-factories.html Europe’s energy crisis is forcing factories into darkness