Stephen Jewkes and Elvira pollina, Isla Binnie and Stephen Jewkes

MILAN, Reuters – The $35 billion European ceramics industry believed the worst was over after sales soared more than 10% in half the year. Order books started to fill in following the devastating effects of the pandemic. Surging gas prices are forcing companies involved in energy-intensive industries to make tough decisions. They must choose whether to pass on increased costs or scale back production. All this while many are feeling that energy transition costs have already been hurting their businesses.

Iris Ceramica Group in Emilia-Romagna, one of the leading Italian manufacturers of the sector, had to establish an energy surcharge at 3% to offset the impact.

The reception was mixed.

Federica Minozzi, CEO, says that while some clients realize we have done everything possible to reduce price increases, others, particularly the bulk buyers, interpret contracts exactly as written and ask for pre-warning periods. Minozzi was inspired by Romano, Minozzi’s father to convince Snam gas transport firm to install its grid in the region. It effectively created the ‘Tile valley’ area of Italy. His daughter plans to create the first industry-first green hydrogen ceramics plant powered by a rooftop sunroof. It is easy to justify this project in light of the rising cost of gas. Minozzi explained that, “In fact, given recent developments,” production might become competitive in an economic perspective faster than we expected.”

Europe’s ceramics industries consume gas for heating furnaces. This fuels 200,000 people in direct jobs. The average overhead expense is 20%, with energy bills of nL8N2QM1BY. Giovanni Savorani of Confindustria Ceramica warns that the last quarter of this year may become a blood bath if no solution is found.

“It is a disaster. There are companies that risk shutting down production and sending workers home because they can’t balance their books,” Savorani told Reuters.

Italy, which with Spain dominates Europe’s ceramics trade, has invested more than 2 billion euros ($2.3 billion) in six years in new materials and technologies to help it compete with cheaper production from China, India and Turkey. COVID-19’s headwinds have helped to restore demand for tiles, with revenue in Italy rising 12.3% in six months. The impact of rising energy prices has slowed the growth in order books.

“I’m thinking of stopping things in January because I can’t produce at these prices and make a profit,” said Savorani, who owns his own company.

RIVALS CHEAPER

The natural gas prices have shot up 300% in the past year, reaching record levels in Europe and Asia. This is because economies are recovering from the COVID-19 Pandemic. Energy consumption has also increased more quickly than supply.

These increases have caused energy-intensive sectors like ceramics, which are a major source of electricity, to review their production in order to adapt to a changing trend that disrupts supply chains and could lead to inflation. Jose Luis Lanuza, Chief Executive of Spain’s Keraben Group, used to look at gas prices once or twice a year, to help decide on structuring contracts for his wall and floor tile business. His statement was, “Now I’m looking at gas everyday and hoping that it falls.” We have no other source of energy. “We have to purchase gas.”

Victoria Plc owned Keraben in September, which spent seven millions euros on its 140m-long ovens. That’s an increase of the monthly average of just two million euros.

He is now looking into partial stoppages in December, potentially cutting production temporarily by around 50% and bringing forward next year’s holiday for employees. Lanuza mentioned that production could be moved to other countries, such as Mexico, Vietnam, Poland and Vietnam.

“We have already begun to look at investments outside of Europe. Although it hurts, I must do what is right.”

Geert Jan Starting is the owner of a Dutch brick plant that dates back to 165. He compares it to World War One when there was a severe disruption in coal supplies from Britain and the Netherlands. This led to an avalanche of bankruptcies. It survived two world wars, as well as transitions from coal to peat and back to coal in the 1960s. But he’s now having to tell clients he can no longer offer them price guarantees amid market volatility. “I didn’t see this coming a few month ago. Price surges of threefold to fourfold and I don’t know what lies ahead.

($1 = 0.8593 euros)