Steel Giant Shuts Down Plants in Germany, Sparking Energy Crisis Fears

German Economy and Climate Action Minister Robert Habeck speaks during a news conference on the future use of liquefied natural gas (LNG) in Berlin, Germany, on Aug. 16, 2022. (Lisi Niesner/File Photo/Reuters)

The energy crisis has been hitting Europe’s largest economy hard, with two of Germany’s largest steel manufacturing plants being forced to shut down.

ArcelorMittal’s plan to deactivate one of its largest steel plants in Hamburg last month caused shockwaves through out the industry.

The world’s second largest steel company also said it would later shut down a blast furnace at its Bremen site at the end of October.

ArcelorMittal is the first large industrial group in Germany to shut down production due to the energy crisis.

High energy use sectors—from steel, chemicals, glass, paper, to ceramics production—have now been put on notice.

The CEO of ArcelorMittal Germany, Reiner Blaschek, warned that the German wing of the steel manufacturing giant can no longer compete with high energy prices, according to Slay News.

Rising gas and electricity prices have left many industrial firms in Germany facing input costs exceeding profitability.

“With a tenfold increase in gas and electricity prices, which we had to accept, within a few months, we are no longer competitive in a market that is 25 percent supplied by imports. We see an urgent need for political action to get energy prices under control immediately,” Blaschek said.

Soaring gas prices have already reduced demand for steel in manufacturing, the auto industry, and construction, while steel plant operational costs continue to go up.

“Production in Germany is currently no longer competitive,” said the ArcelorMittal CEO.

Russian Energy Sanctions And German Dependency

Massive cuts in Russian natural gas, triggered by European Union sanctions on Moscow over the Kremlin’s invasion of Ukraine and the loss of key pipelines due to sabotage, have seen the German industrial sector to struggle.

European steel capacity has already been cut by about 20 percent across the bloc, with ArcelorMittal bearing most of the cuts, reported Bloomberg.

Additional energy costs in Germany are expected to exceed $10.6 billion in 2022, about 25 percent of the steel industry’s average annual turnover, according to German steel trade association Wirtschaftsvereinigung Stahl.

The steel company said “low market demand, negative economic perspectives and high CO2 costs in steel production” were behind the decision to close both sites, in addition to energy costs, reported Industry Week.

Germany has not been able to import enough LNG or gas from Norway to keep electricity prices down, with much of the continent at the mercy of the market.

The decision by the firm to partially idle its massive steelworks in Hamburg and in Bremen have raised fears that German industry, the backbone of Europe’s biggest economy, is facing an eminent threat.

The Hamburg plant will also stop producing sponge iron on Oct. 1, a key ingredient for making steel, until further notice.

The move by ArcelorMittal has caused trouble for the supply chain, as the plant produces more than one million tonnes of steel a year for machine, automobile, ship, pipeline production, and for construction.

Workers will be kept on shorter hours at its Bremen site, joining their the 530 employees at the Hamburg plant.

The Hamburg steel plant, which consumes an enormous amount of energy, was coordinating production with local authorities to avoid interference with peak electrical usage with local residents.

The Hamburg facility consumes large amounts of natural gas, which is currently costing a premium, but without flows from Russia, the steel plant was dependent on the weather—only able to operate when there was enough solar and wind power on the grid.

One of the smelters to produce crude iron used 76,000 kilowatt-hours of electricity in an hour, the equivalent of running half a million televisions, according to Die Welt.

“We have the gas needs of the city of Lübeck and the electricity needs of Kiel,” said Ansgar Jüchter, an engineer at the plant, according to Slay News.

Scholz’s Government Tries To Assure Public as Analysts Warn of Looming Disaster

There is concern among economists that the mounting energy crisis plaguing Germany may push the economy towards disaster if the faltering situation in its core industrial sector fails to improve.

Industrial production accounts for around 22 percent of Germany’s GDP, according to AFP.

The German government is already preparing for a recession after it forecasted earlier this month a contraction in GDP of 0.4 percent in 2023.

Blaschek called for immediate political intervention as energy costs spiral out of control, saying “we need competitive energy prices for industry.”

“Other industrial sectors are also having major problems,” warned Blaschek, and any downturn in Germany’s steel industry may lead to a domino effect that could take down the rest of the country’s industrial sector.

The Association of German Chambers of Industry and Commerce (DIHK) told the Frankfurter Allegmeine Zeitung that the German economy could crash to a halt if companies are unable to access more energy supplies.

“More and more companies are telling us that they no longer have a supply contract for electricity or gas at all,” DIHK President Peter Adrian said.

Economics Minister Robert Habeck told German industry that the government would do their best to support them during the energy crisis, reported Redaktionsnetzwerk Deutschland.

“There is a threat of operational closures and we must address it. That is why we will expand the aid programs,” the vice chancellor said.

German chancellor Olaf Scholz announced a $198 billion energy relief fund to for struggling households and businesses, along with a temporary cap on gas prices into next year, reported AFP.

Last week, Scholz ordered his ministers to keep the country’s three remaining nuclear plants running until mid-April, after the energy crisis split his three-party coalition, reported The Associated Press.

However, Scholz will still push through a law to end coal use in Germany by 2030 and build new power plants that would burn hydrogen instead.

The Associated Press contributed to this report.