German Manufacturers Struggle As Energy Crisis Persists

Via AG Metal Miner An attention-grabbing headline in the Financial Times perfectly illustrates the dire predicament in which Germany's manufacturing industry finds itself. The title, "Energy crisis leaves Germany's Toilet Paper Makers Struggling to Clean Up" conjures up all kinds of images. Unfortunately, sky-high power costs continue to deprive Germans of more than sanitary products. From heat and light to jobs, many German citizens are watching their lifestyles go "down the tubes."

Indeed, the high cost of energy across Europe caused multiple bankruptcies. This isn't just limited to toilet paper and diaper manufacturers, but also the metals sector, cement, chemicals, and more.

The cheeky FT post quotes Germany's BDI as saying the energy crisis is likely to be more severe for manufacturing than COVID. Many will remember that the pandemic caused a similar run on toilet paper. However, the stakes are much higher this time. As the head of one chemical company supplying the country's toilet paper producers noted, "At [the current] price level, it will mean an automatic deindustrialization for Germany."

Berlin Trying to Stay Ahead of Energy Crisis

So far, Berlin has tried frantically to avoid getting caught with its pants down on this amid the energy crisis. Indeed, state officials recently announced a €65bn relief package funded by a windfall tax on electricity producers to help soften the costs.

The package offers one-off payments to help households with energy bills. It also includes an extension of the €5bn aid package for energy-intensive companies, first introduced in July. In August, chancellor Olaf Scholz also announced a cut in the value-added tax on gas sales from 19% to 7%.

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Despite these efforts, firms continue to close. Examples include Hackle, one of Germany's best-known toilet paper manufacturers. However, those remaining don't just face high-capped prices, but also the possibility of rationing come winter resulting from the energy crisis.

Deutsche Bank forecasts a 3.5% recession for Germany next year, as demand for nearly all products - apart from toilet paper - falls. Some firms are actively switching to alternative fuel sources like liquefied natural gas and hydrogen. And while that may widen their energy options, it will do little to reduce costs. After all, there's a reason no one used LNG and Hydrogen before. Both are extremely expensive and suffer many of the same constraints as natural gas, which doesn't help the energy crisis.

If rationing occurs, households up and down the land should hope toilet manufacturers receive priority. As one spokesman said, "we can live without chocolate cookie packaging, but we can't comfortably live without toilet paper."

By AG Metal Miner

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