Last month, rybar described how sanctions and rising energy prices are pushing France toward deindustrialization. But in Germany, Europe's manufacturing powerhouse, these factors are even stronger.
Together with Übersicht Ukraine, rybar took a look at the current negative trends in German industries.
🔻Who suffers the most and why?
▪️For nearly a year now, Germany has been experiencing high electricity prices due to anti-Russian sanctions. Fearing a shortage, Germany has even actively purchased energy from France to ensure the winter.
Now many German companies are beginning to question whether their production in Germany will even be profitable in the future.
▪️The crisis has hit 5 of 20 sectors of German manufacturing industry. Those 5 sectors require about 80% of total German energy consumption.
These include chemical production, metallurgy, coke processing, glass & ceramics as well as paper & cardboard production. These sectors employ 930,000 people and have a turnover of 470 billion euros.
The first three sectors are the main contributors to the German budget, with 6.7% of the enterprises generating 20.1% of the income of the entire industry.
❗️As industrial production shrinks, high-value jobs are at risk. In particular, more than half of the employees of BASF, the largest chemical company, already live outside Germany.
🔻 What about production volumes?
Germany is one of the ten largest steel producers in the world. Two-thirds of the jobs in this sector in Germany depend on the steel industry.
▪️In November 2022, German crude steel production fell of 18% on annual basis, representing about 2.8 million tons. This is the lowest figure since July 2020.
▪️ Raw aluminum production fell particularly abruptly by 25%, compared to the same quarter of the previous year.
The level of electricity prices is forcing aluminum smelter operators to gradually shut down furnaces. And, according to Rob van Gils, president of Aluminium Deutschland, the future of the industry is in doubt.
▪️Some companies have even come up with a loophole to benefit somehow from the situation. Steel and aluminum producers speculate on the energy market. They don’t use the forecasted volumes of electricity as it's still not enough to keep their plants running at full capacity. Instead, they resell it at a higher price to others.
🔻 Due to the extremely high dependence of the most important German industries on production exports and energy prices, it is the production sector that becomes the main victim of the anti-Russian sanctions policy.
All other companies depend directly or indirectly on energy-intensive industries and are also forced to reduce production volumes. They have to import more expensive resources from abroad and the German heavy industry is forced to cut jobs.
Together with the trend of a brain drain to the U.S. and the relocation of entire companies, all this will eventually lead to an even deeper economic crisis in Germany and drive the country deeper into dependence on U.S. loans.