Economic Freedom Hit Record High Globally���Before The Shutdowns

Every day, news comes from Europe about the bankruptcy of an energy company or the shutdown of factories. Metallurgy, the chemical industry, the production of building materials – all these industries are already affected by the colossal rise in prices for coal, gas and electricity. However, before us is just the beginning of a big process that will affect the entire world economy. There will be consequences for Russia as well.

News about the shutdown of production in different countries in recent weeks is adjacent to reports of the next historical records of exchange prices for coal and gas.

The domino principle in action

Back in mid-September, the first to signal SOS were the producers of mineral fertilizers, for which natural gas is a component of their technological processes. After the cost of gas in Europe approached one thousand dollars per thousand cubic meters, the American company CF Industries, one of the world’s leading producers of nitrogen fertilizers, announced the termination of activity at its production complexes in the British cities of Billingham and Ince with a total capacity of more than 1.2 million tons of products per year.

The British initiative was also supported by the largest European fertilizer producer – Yara holding, the main shareholder of which is the government of Norway. The company’s management said that due to the rise in gas prices, it will have to cut production of ammonia products in Europe by about 40%. And by mid-October, a real chain reaction began in the industry. At the moment, companies in Germany and Austria, Ukraine and Lithuania have warned about a decrease in production volumes or a complete shutdown of capacities, and China has decided to reduce the export of fertilizers.

Rising gas prices triggered a surge in electricity tariffs that was quickly felt by one of the most energy-intensive sectors in heavy industry – aluminum production. On October 15, the British Financial Times reported that one of the world leaders in this industry, ArcelorMittal, would have to temporarily stop production at several European plants. A few days earlier, at least until early next year, the only remaining plant in the Netherlands, owned by the local company Aldel, ceased production of primary aluminum. Smelting the metal has lost its economic sense, as the electricity required to produce a ton of aluminum now costs almost twice as much as the aluminum itself.

ArcelorMittal in Europe at its factories raised the cost of sold metal by 60 euros per ton, notes Alexander Tsarev, general director of the MAMI metal structures plant. And some producers, according to him, were forced to increase the cost of a ton of metal by 170-200 euros.

Such industries as metallurgy, mechanical engineering, production of building materials, oil refining are most dependent on surges in gas and electricity prices, summarizes Inna Shcheglova, Marketing Director of PenzTyazhPromArmatura Group. Also, according to her, it is difficult for representatives of the food industry, pharmaceuticals, cosmetics, and the chemical industry. One of its largest players in the world, the German holding BASF, has already announced that at current gas prices it cannot provide a full production cycle.

The shutdown of production leads to a shortage of products consumed by other industries, where dependence on the cost of energy resources may not be so high. The most obvious example is, again, the mineral fertilizer sector. Their shortage is already provoking a rise in prices, which will inevitably affect the cost of agricultural products.

In September, the world food price index increased by 1.2% compared to August, which became a record over the past 10 years – this trend will continue in the near future, predicts Oleg Shevtsov, General Director of the energy integrator Transenercom. According to him, the rise in fuel prices is already negatively affecting the cost of grains and oilseeds, coffee, tea, olives and citrus fruits – these products have increased in price the most recently. In European countries, greenhouse products – tomatoes, cucumbers and bell peppers – have risen in price by 20-25% due to savings on heating of greenhouses, which is highly dependent on the cost of gas.

There are no more “safe havens”

There is one more important aspect of the current energy crisis. It differs from the previous ones in that the victims included not only the most energy-intensive sectors of the industry, but also the producers and suppliers of electricity themselves, says Igor Kuchma, an analyst at the TradingView, Inc. platform.

Indeed, news about bankruptcy or exits from the market of energy companies now also comes in daily. Bohemia Energy, one of the largest suppliers of electricity and gas in the Czech Republic, was forced to announce its closure amid abnormal energy prices in the wholesale markets. German energy concern E.ON said it no longer concludes contracts for gas supplies in light of rising fuel prices. Troubled by power supply companies in the UK is regularly reported.

Source : https://thegoaspotlight.com/2021/10/15/look-gas-prices-will-hit-the-entire-global-economy-economy/

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