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EU industry warns on prices as Ukraine crisis drives up energy costs

Some of Europe’s biggest industrial groups have warned of further price rises in the face of energy cost volatility following Russia’s invasion of Ukraine.

European natural gas prices fell back to €94 per megawatt hour on Friday, after spiking 69 per cent to €142 on Thursday as the onset of war stoked fears of disruption to Russian gas supplies. European gas prices are almost six times higher than a year ago.

BASF, the world’s biggest chemicals group, warned of renewed price increases on Friday after its natural gas costs alone rose by €1.5bn last year.

Martin Brudermüller, chief executive of the German multinational, also raised concerns about a broader drop in industrial output as a result of the war in Ukraine, possibly hitting demand for building-block chemicals.

“The war in Ukraine has the potential to significantly reduce growth of global GDP and industrial production,” he said.

Natural gas is burnt to generate electricity or used as a direct feedstock by companies such as fertiliser and plastics makers. As its price has soared in recent months, European chemical and cement companies have sought to protect their margins by passing additional costs on to customers.

BASF’s Belgian peer Solvay, which produces soda ash used in glass and detergents, said on Thursday it would accelerate price rises this year to cover the additional rise in energy costs.

Meanwhile, Dominik von Achten, chair of HeidelbergCement, told analysts that managing energy inflation had become “an hourly management task now — it’s not daily.”

After Berlin froze the Nord Stream 2 gas pipeline project between Russia and Germany this week and with western sanctions on Russian energy exports still a possibility, executives expect little short-term relief in the European gas market.

Holcim, the world’s biggest cement producer, and French building materials conglomerate Saint Gobain said they were confident of passing price rises on to their customers and believed that efforts to renovate housing to reduce energy consumption would likely speed up.

Jan Jenisch, Holcim CEO, told the Financial Times it was preparing to raise prices for its cement by more than the 6 per cent increase of last year, after severe cost inflation that included a Sfr550mn ($593mn) jump in energy costs.

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EU industry warns on prices as Ukraine crisis drives up energy costs

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Despite the inflationary pressures and outbreak of war in Europe, he still expected construction demand to remain robust. “Poland, Romania, Czech Republic and Slovakia are EU-connected,” Jenisch said. “I cannot imagine they will go into a recession.”

Petrochemical producers such as BASF, LyondellBasell and Ineos are also at risk from a potential surge in prices and limited availability of naphtha, a feedstock in plastics production.

Ajay Parmar, senior analyst at consultancy ICIS, said half of Europe’s naphtha comes from Russia and that any reduction of supply could cause shortages.

Video: Russian troops heading ‘at speed’ to Kyiv

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