The devastation of skyrocketing energy costs on European consumers due to the fallout of Russia’s invasion of Ukraine is well-documented. But the emergency is also slamming small and medium-sized manufacturers, forcing many to look to close or relocate.
Russia’s stranglehold on the flow of natural gas and subsequent surge in energy prices has hit companies hard. The Wall Street Journal, for example, reports that producers for the continent’s fashion industry are seeing the businesses struggle to keep up with soaring costs.
Profit margins for many textile producers have plummeted as energy costs surged from roughly 5% of production expenses to nearly 25%.
Many manufacturers in the UK report that they are unable to build the increased costs of production into their products, meaning they face brutal decisions concerning their futures.
Some are deciding to move operations offshore.
Europe is erupting
Mass protests across Europe against high food and energy prices and the sanctions on Russia that are crippling European economies and protests against EU policies and NATO pic.twitter.com/NcFCKgzwZT
— UkraineNews (@Ukraine66251776) October 19, 2022
An ominous warning came in recent days when BMW revealed its plan to move production of electric Minis to China from their present facility in Oxford. The company declared UK “inefficiencies” as the reason.
BMW’s electric hatchback and small SUV Minis will now be built in Asia.
Other manufacturers are looking to Turkey due to lower unit costs for labor production, and both producers and suppliers report having to leave Europe to remain profitable.
Increasing costs have resulted in some producers claiming a 50% drop in orders in 2022. And it’s not only European manufacturers who are struggling.
Bloomberg cites evidence that surging natural gas and energy prices are slamming U.S. industries as well. It uses the example of Century Aluminum in Kentucky, which announced over the summer that the second-largest aluminum mill in the nation was shutting down.
The site supplied 20% of the domestic aluminum supply.
Forecasts from the U.S. government predict that industrial customers, if they have not already reached this point, will soon be at their highest levels ever. By midsummer natural gas prices had already tripled from just a year ago.
Both Europe and the U.S. have resources to substantially increase their energy independence. But the EU wants to turn its back on nuclear power, and the Biden administration fears every energy source that is not wholly renewable. Both are shortsighted and both are paying a heavy price.