European gas crisis threatens the survival of a struggling aluminum business

Gerd Roeders is reluctantly prepared to temporarily suspend his German aluminum foundry in order to weather Europe's worsening gas scarcity.

Roeders expects that by moving the 200-year-old operation to three weeks of 24-hour shifts followed by one week of rest, he would be able to maintain output while also decreasing his gas use.

According to him, his expenses have more than doubled since last year, and he anticipates that they will triple or perhaps quadruple by 2023.

Roeders estimates that the plan will lower the cost of the gas needed to power the ovens every morning, even if it means paying family-owned G.A. Roeders employees work night shifts.

Survival for G.A. Roeders GmbH and Germany's 600 smaller foundries, the great majority of which have fewer than 250 employees, will need cost reductions and unpleasant customer negotiations.

As staff prepared the facility for its first week of vacation, Roeders, 59, told Reuters, "We're establishing our prices for customers and advising them that they must pay extra." "We are unable to produce components if our investments yield no return."

G.A. Roeders, which has facilities in Germany and the Czech Republic and employs more than 500 people, produces over a thousand distinct components. It generates annual sales of 60 million euros servicing automakers such as Volkswagen (ETR:VOWG p) and Continental, aircraft manufacturers, and medical technology firms.

Contracts for foundries often include a clause enabling them to increase prices if the price of metal increases, but there is no such clause for energy.

Roeders added that he had always tried to conserve energy - the company's second-largest expenditure after staff - a tendency he inherited from his father, who would switch off office computers at night and dim the lights at lunch.

However, the organization is currently seeing great expansion.

Since the beginning of the year, the price of the front-month Dutch TTF gas contract, the European benchmark, has virtually tripled as a result of the reduction in Russian gas supplies via Nord Stream 1 and a tight global market.

Roeders remarked that it would be a step in the wrong direction to reuse the company's 30,000-litre oil tank, which has not been employed for years.

The German energy regulator is asking businesses, the government, and consumers to minimize their gas use and has required the larger corporations to submit emergency plans to further reduce usage throughout the winter.

German manufacturers such as Mercedes-Benz and Volkswagen have stressed in recent weeks that sustaining production levels under emergency plans will only be possible if their suppliers continue to provide parts.

Aluminum, steel, and glass industries are even more dependent on natural gas than automobiles, creating worries that their global clientele would suffer if they were forced to suspend production.

According to supply chain analytics firm Interos, German car component manufacturers sell to over 3,000 direct customers in the United States, Europe, and Japan, with their products reaching over 100,000 second-tier clients.

'DRESS UP WARM'

The energy crisis is the latest in a string of interruptions, including limitations on carbon emissions, supply chain bottlenecks, and stricter due diligence regulations, which, according to small businesses, they would struggle to overcome without further aid.

A spokesman for the German Association of Foundries noted, "Converting to electric-powered machinery requires considerable upgrades and is only a possibility in the medium term."

"Currently, there is no alternative to filling machinery with gasoline," the spokesperson stated.

G.A. Roeders, along with an association of other aluminum producers and a university, has been awarded government funding to develop a prototype smelting furnace that may run on a combination of 30%-40% hydrogen and 60%-70% gas.

The ultimate objective is to operate only on hydrogen.

Since Russia's invasion of Ukraine, interest in the concept has surged, but there are still a number of challenges that must be overcome before it can be implemented, such as scaling up the technology and developing a hydrogen charging network.

He indicated that industrializing something of this sort normally requires at least five years. As there is currently no hydrogen oven, we will need to dress warmly.