Europe's factories, asked to save energy through a turbulent year, have quieted in ways that reach beyond thrift: gas that once powered aluminium smelters, fertiliser plants and chemical works has grown too dear, and what began as a response to a war in Ukraine now carries the older question of where heavy industry can survive. Analysts see in the shutdowns not only saved energy but lost capacity, and the fear is that a pause may harden into a departure. The outcome will depend on whether the cost of warmth and power falls back far enough to call the factories home again.
Energy Crisis Erodes Europe's Industrial Base as Plants Close and Production Moves Abroad
Job losses and reduced output are implied as factories close and firms cut production, though no specific casualties or layoff counts are reported.
Temporary closures, he noted, have historically led to permanent ones.
Mark
The headline number is that industrial gas demand fell 25%. That sounds like good news for a continent short on gas.
Mimi
It is, in the short run. But the story's point is that the saving isn't mostly thermostats. Analysts say efficiency couldn't deliver a drop that large, so plants must have shut down.
Luke
Worth flagging that the shutdown explanation is analysts' inference. The IEA figure is an estimate, and the source doesn't give a breakdown between efficiency and closures.
Mark
And the concrete closures? Are those documented?
Mimi
Several are. Half of aluminium output gone, all nine zinc smelters cut or stopped, more than half of ammonia capacity shut, and Yara down by two-thirds in Europe.
Luke
Those come from different sources, Reuters trade data, industry groups, a company. Yara's cut is firm, but the ammonia share is the fertilizer association's figure. They point the same direction, though.
Mark
Why does Eurometaux say temporary closures become permanent?
Mimi
Cost and uncertainty. Restarting an aluminium smelter can run up to 400 million euros, and nobody wants to spend that in a shaky economy.
Luke
That's a forecast, not an outcome. Heron says it's historically the pattern; nothing yet shows these particular smelters won't reopen.
Mark
What about jobs?
Luke
The source gives none. No layoff counts. We shouldn't fill that in.
Mimi
What it does show is firms like Tata Chemicals planning quarter by quarter instead of five years out. That's what uncertainty looks like on the ground.
Le Pouls
- Industrial gas demand in Europe reportedly dropped 25% in the third quarter, and analysts believe closures, not just efficiency, explain much of the fall.
- Gas in the United States costs about a fifth of European prices, pulling energy-intensive production toward cheaper shores.
- Half of EU ammonia output has shut and aluminium output has been halved in a year, with all nine EU zinc smelters cutting or halting production.
- German firms are scaling back: over a quarter of chemical companies report forced output cuts, and 17% of carmakers and suppliers plan to move some production abroad.
- Companies are shrinking their planning horizons from five years to a quarter, and BASF has questioned the business case for new European plants.
Europe's factories, asked to save energy through a turbulent year, have quieted in ways that reach beyond thrift: gas that once powered aluminium smelters, fertiliser plants and chemical works has grown too dear, and what began as a response to a war in Ukraine now carries the older question of where heavy industry can survive. Analysts see in the shutdowns not only saved energy but lost capacity, and the fear is that a pause may harden into a departure. The outcome will depend on whether the cost of warmth and power falls back far enough to call the factories home again.
Europe's industrial companies did what governments asked: they used less energy. Demand for gas and electricity fell, and the International Energy Agency estimates that industrial gas demand dropped 25% in the third quarter from a year earlier. Analysts doubt efficiency alone could account for that. Plant shutdowns must be behind much of it, and some may never reopen.
The crisis began with Russia's war in Ukraine and Moscow's supply cuts. Prices have eased somewhat after a warm October, yet American gas still costs about a fifth of what European firms pay. Executives and economists warn that aluminium, fertiliser and chemicals are most exposed to a permanent move of production to cheap-energy regions. Patrick Lammers of E.ON called the retreat demand destruction.
The strain is visible across the economy. Euro-zone manufacturing has hit its weakest level since May 2020, and a German chambers of commerce survey of 24,000 businesses found firms already cutting back, especially makers of chemicals and metals. EU primary aluminium output has fallen by a million tonnes, and reopening a smelter could cost up to 400 million euros, an expense unlikely to be justified in such uncertainty. Temporary closures, one industry group notes, have a way of becoming permanent.
The damage reaches beyond factories. Europe has become a net importer of chemicals for the first time, over half its ammonia output has shut, and BASF has questioned whether new European plants make business sense. Some firms are adapting: a Bavarian fibre maker is preparing to switch fuels, and a Greek yarn producer expects its output to drop 30%. Tata Chemicals now plans quarter by quarter rather than five years ahead, warning that investment will flow elsewhere if high gas prices last three or four years.
The key question is whether prices stay high long enough to turn temporary shutdowns into permanent relocations.
Europe's industrial companies did what governments asked of them last quarter: they used less energy. Demand for natural gas and electricity both fell. The International Energy Agency estimates that industrial gas demand in Europe dropped 25% in the third quarter compared with a year earlier. But analysts say efficiency gains alone could not produce savings of that size. Widespread shutdowns must be behind much of it, and some of those plants may never reopen.
The pressure comes from the energy crisis set off by Russia's war in Ukraine and Moscow's supply cuts. An unusually warm October and forecasts of a mild winter have pushed prices down somewhat, yet natural gas in the United States still costs about a fifth of what companies pay in Europe. Executives, economists and industry groups warn that if costs stay high, the continent's industrial base could be badly weakened, with aluminium, fertilisers and chemicals most exposed to a permanent move of production to places where energy is cheap. Patrick Lammers, a management board member at the utility E.ON, told a London conference last month that many companies are simply quitting production, which he described as demand destruction.
The wider economy shows the strain. Euro-zone manufacturing activity this month hit its weakest level since May 2020, a sign that Europe is heading toward recession. A European Commission spokesperson said the bloc is doing all it can to prevent a reduction in industrial activity. Yet a survey released Wednesday by the German chambers of commerce and industry (DIHK), covering 24,000 businesses, found German firms already scaling back. More than one in four chemical companies and 16% of auto-sector companies said they were being forced to cut output, and 17% of carmakers and suppliers said they planned to move some production abroad. DIHK Managing Director Martin Wansleben said energy-intensive makers of intermediate goods, such as chemicals and metals, were cutting back most visibly.
European industry has moved toward cheaper labour and lower costs for decades, but analysts say the energy crisis is speeding that exodus. Daniel Kral, senior economist at Oxford Economics, said that if prices stay high enough to make part of European industry structurally uncompetitive, factories will close and relocate to the U.S., where shale energy is abundant. EU primary aluminium output has already been halved over the past year, a loss of 1 million tonnes. Trade figures compiled by Reuters show that all nine zinc smelters in the bloc have cut or stopped production, with imports from China, Kazakhstan, Turkey and Russia filling the gap. Chris Heron of the industry association Eurometaux said reopening an aluminium smelter can cost up to 400 million euros, about $394 million, and is unlikely given the uncertain outlook. Temporary closures, he noted, have historically led to permanent ones.
The same costs threaten Western efforts to secure minerals for electric vehicles and renewable infrastructure. Brussels is expected to propose the European Critical Raw Materials Act early next year to build reserves of lithium, bauxite, nickel and rare earths. Emanuele Manigrassi of European Aluminium warned that without more renewable power and lower costs, companies are unlikely to invest in Europe.
Examples are accumulating. Europe became a net importer of chemicals for the first time this year, according to the European Chemical Industry Council, Cefic. The International Fertilizer Association says more than half of European ammonia production, a key fertiliser ingredient, has shut and been replaced by imports. Norway's Yara has cut two-thirds of its European ammonia output and has no immediate plans to restore it; CEO Svein Tore Holsether said the company is making contingency plans. Last week, BASF, the world's largest chemical group, questioned whether a business case exists for new plants in Europe. It has also warned that it would have to curtail production at its Ludwigshafen site, Germany's biggest industrial power consumer, if gas supplies fall below half of its needs.
Some firms are adapting. Kelheim Fibres, a German viscose fibre maker that supplies Procter & Gamble, has cut output twice this year at its Bavarian factory. Executive Wolfgang Ott said it will be able to switch to oil from January 1, and the company is seeking government help with energy costs and considering a 2 megawatt solar project. In Greece, the small yarn producer Selected Textiles expects output at its Farsala plant to fall 30% this year, CEO Apostolos Dontas said, as orders from northern Europe decline. Martin Ashcroft, Europe managing director of Tata Chemicals, said the company has moved from a five-year planning horizon to a quarterly one, and warned that if high gas prices last three or four years, investment will be directed elsewhere.
What to watch is whether prices stay high long enough to turn temporary shutdowns into permanent relocations.
Citations marquantes
If prices stay so elevated that part of European industry becomes structurally uncompetitive, factories will shut down and move to the U.S.— Daniel Kral, senior economist, Oxford Economics
Historically, when these temporary closures happen, permanent closures come as a consequence.— Chris Heron, Eurometaux
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