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Soaring power prices amid Europe’s gas crunch will have a lasting impact on the bottom lines of mining and metal companies as prices in their long-term electricity supply contracts will increase, an executive at a Swedish metals producer told Bloomberg on Friday.
“Contracts will have to be renewed sooner or later. However they are written, you will eventually get hurt because of the situation in the market,” Mats Gustavsson, vice president for energy at Sweden’s metals producer Boliden, told Bloomberg in an interview.
“If you are exposed to the market, the operational expenses have of course increased,” Gustavsson said.
As companies mining and processing metals are looking to cut their carbon footprint, they electrify some processes and use more electricity. However, soaring electricity prices will hike their operating costs, diminishing profit margins.
The price spikes and volatility are here to stay, according to Boliden’s Gustavsson, who says that metal producers may have to contend with higher power prices for longer.
The metals sector is the latest in the heavy industry to suffer from the surging natural gas and power prices in Europe. The price spikes have already started to hit industrial activities, threatening to deal a blow to the post-COVID recovery in Europe.
Giant European firms, from chemicals and mining to the food sector, say sky-high gas and electricity prices are hitting their profit margins and forcing some of them to curtail operations.
Some factories have shut down because of record natural gas prices. More idling of industrial activity across Europe is likely in the coming weeks, analysts say.
Earlier this week, British Steel, the second-largest steel producer in the UK, warned that electricity prices are “spiralling out of control,” and a 50-fold jump in quoted power rates makes production unprofitable at certain times in the UK, the Financial Times reported.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.