U.K. Factories Halt Some Production as Energy Prices Surge

(Bloomberg) -- High energy prices are forcing some manufacturers to halt production in a foretaste of what may become a more widespread shutdown that if the war in Ukraine leads to acute shortages of natural gas.

A survey by Make UK, the manufacturing industry group, found that 17% of companies have had to “temporarily halt production of products that are energy intensive to fabricate” this year.

Gas prices have risen 59-fold since May 2020, and oil prices are at a seven year high, making it increasingly costly for factories to maintain output. Russia's invasion of Ukraine has made a bad situation worse, driving energy prices higher and leading to shortages of essential components. Car makers in Europe have closed factories for a lack of parts in recent days.

Britain's steel makers are resorting to temporary shutdowns to deal with high and volatile energy costs. Plants that use electric-arc furnaces are “having to take decisions about whether to produce or not,” said Frank Aaskov, energy and climate change policy manager at UK Steel, a group within Make UK.

Furnaces are being switched off when electricity prices spike and back on when they fall. Prices vary depending on the time of day and demand for energy. “It is costly and bad for productivity,” Aaskov said.

Energy prices are now 300 pounds ($396) a megawatt-hour above pre-energy crisis levels, adding about 150 pounds to the cost of producing a ton of steel in an electric arc furnace, the group said. While they have not reached last autumn's highs, “we are seeing consistent very high prices” due to the war in Ukraine, Aaskov said.

Producers are raising prices where they can and taking a hit on profits, he added.

Make UK's survey of 132 companies also found that 46% are adjusting business practices to reduce their energy consumption, 39% are passing on the higher costs to customers and 11% are taking on extra finance to cover expected higher energy costs.