(Bloomberg) — The relentless surge in European energy prices is exposing the region’s biggest gas and power consumers to heavy losses, forcing industrial giants to cut production and threatening the economic recovery.

Financial strain is increasing for metal and fertilizer-related industries, including those that rely on energy to make ends meet. Energy prices are hitting new records every day. Aluminium Dunkerque Industries France, Europe’s top smelter of the metal, curbed output in the past two weeks. Trafigura’s Nyrstar The NV (BR) will stop zinc production in France early January, and Azomures, a Romanian fertilizer manufacturer has temporarily stopped activity.

This year’s energy crunch is so severe that gas prices surged more than 800%, while power costs jumped some 500%. And with the coldest months of the winter still ahead and Russia curbing gas supplies, there’s no relief in sight. All of that is threatening to leave lasting scars on Europe’s industrial economy just as the coronavirus omicron variant spreads across the continent.

“Higher gas prices, both for households and for businesses, are going to be headwinds to activity,” Sarah Hewin, head of Europe and Americas research at Standard Chartered (OTC:), said in an interview on Bloomberg TV. “This latest surge in gas prices is clearly a negative development for the outlook for all European economies and including the U.K. as well.”

Aluminium Dunkerque, a highly-energy-intensive industrial metal to produce, had to reduce its output by 3% due to rising power prices. According to Laurent Geeraert (union representative), He said that the plant has lost approximately 20 million euros (or $22.6 million) in November and additional curbs might be required if prices continue to rise. 

Nyrstar will put a French zinc smelter on care and maintenance during the first week in January. Other plants in Belgium, the Netherlands and Belgium will still operate at reduced capacities. According to local media, Alro, the Romanian smelter, said that current prices were unsustainable. However, in Montenegro, KAP may lose its power at year’s end if it does not agree to pay substantially more to its supplier next year. 

How much does food cost?

There’s also a threat to the food-supply chain. Romania’s top fertilizer producer Azomures, a unit of Swiss grain trader Ameropa AG, said on Friday that facilities had started to be shut down and that farmers would not be able to afford such high prices. Norway’s Yara International (OTC:), which curbed output earlier this year, said it would continue to monitor the situation closely and curtail production where necessary.

“This is going to bite us eventually in terms of the cost of food and this isn’t going to have an impact on Europe, this is going to have an impact in a lot of countries,” said Anne-Sophie Corbeau, a research scholar at the Center on Global Energy Policy at Columbia University.

Italian Premier Mario Draghi said the increase in energy prices “requires urgent action.” Of the European Union’s 27 members, 20 have acted to soften the blow for the most vulnerable consumers and households.

“The EU Commission is working but we need to work at national level as well and support for families and businesses,” he told reporters on Wednesday.

Because of the high costs involved in shutting down or restarting production, aluminum smelters take a long time to reduce their output. While major power buyers typically have long-term power hedges in place, it’s only a matter of time before the surge feeds through.

Existential Crisis

“We’re seeing an existential crisis of the European aluminum industry and other metals-smelting industries that are power intensive,” said Mark Hansen, chief executive officer at metals trader Concord Resources Ltd. “It’s not always so easy to get these businesses back in operation. These are not just on-off switches.”

Aluminum prices rose by more than 40% last year, and the demand is strong. But energy prices are hurting profitability. For the typical power required to produce one ton aluminum at approximately $2,800 per ton, it would run about $11,000 to pay France’s one-month baseload price.

Europe’s aluminum smelters account for a small share of global production, but they employ thousands of workers and are a valuable source of tax revenue. Hansen suggested that the reductions in production could lead to the region having to import power from countries using fossil fuels. Should the EU place a carbon tax on products that are more energy-intensive, it could lead to further negative effects for consumers.

Europe’s energy crunch is set to deepen next year as the weather gets colder and Electricite de France SA (PA:) grapples with several reactor outages. At the beginning of January, 30% of the nation’s nuclear capacity will be offline, increasing the reliance on gas, coal and even oil to keep the lights on.

“If there are further supply disruptions or extreme cold weather in the first quarter, we are basically down to shutting down factories,” Corbeau said. “That’s the only we thing we can do, because governments cannot have people freezing in the dark”. 

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