Crisis in Europe

Energy costs, materials loss disrupt ceramics industry

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By K. Schipper

COVID-19 proved to be the improbable boost to the U.S. hard surfaces industry, but other extraordinary events are having the opposite effect with the European ceramic community. Two of Europe’s largest ceramic tile producing countries -- Italy, and Spain --have been dealing with a double whammy beginning early last year when the economic recovery following COVID began inflating the price of natural gas used to run the industry’s kilns. The Russia-Ukraine war added more problems with important supplies --- not only with the continued flow of Russia’s natural gas, but also with prized white clay exports from Ukraine.

Not only has it caused plants to shut down and lay off workers, but Feria Valencia, organizers of the international ceramic and bathroom event, Cevisama, have canceled this year’s event, delaying it until late next February. Feria Valencia calls the cost of energy “prohibitive,” and the associations that represent the ceramics industries of the two countries put the burden into hard numbers. Sassuolo, Italy-based Confindustria Ceramica notes that, for Italian manufacturers, the price of energy quadrupled in the past few years, from approximately €250 million in 2019 to an estimated €1.1 billion earlier this year. And it’s no better in Spain, the Castellon-based Spanish Association of Manufacturers of Ceramic Tiles and Pavements (ASCER), quotes figures of €46.29 per MWh late last year, compared with only €7.78 per MWh in 2020. “The war between Russia and Ukraine has further aggravated the situation, registering unprecedented records in energy prices,” according to a ASCER release. “Between January 1 and March 15, the average TTF (Dutch reference market) price was €107.26 per MWh, or 479% higher when compared to the same period the previous year.” Even so, Spain finds itself in a better position than Italy in terms of natural gas imports. Alberto Echavarria, ASCER’s secretary general, says that country is currently importing only 8.9% of its natural gas supply from Russia. “In order to ensure its guarantee of supply, Spain has been working in the past years to diversify its energy sources,” he says. “In 2021, Spain imported gas from 16 countries.” By comparison, most-recent figures show Italy relying on Russia for 38% of its gas supply. There, too, an effort is being made to diversify its natural gas supplies. Giovanni Savorani, chair of Confindustria Ceramica, speaking in the first week in May, notes Italy had already signed an agreement with Algeria to import natural gas from that country. That same week, the country also inked a similar agreement with Qatar and Angola, and negotiations are underway with the Republic of Congo. Italy also has some natural gas reserves off its Adriatic coast that, thanks to a law allowing a two-billion cubic meter increase in Italian natural gas extraction, may prove to be more attractive to develop given today’s prices.

“A new formula should need to be constant in time, and the lack of raw materials can force us to be flexible and reformulate constantly.”

Alberto Echavarria ASCER Secretary General

If that isn’t challenge enough, Italy and Spain are facing the lack of one of the distinct clays that goes into its products. The invasion of Ukraine meant the end of shipments of white clay, which makes up 25% of the raw materials used by the ceramics industry. The clay quarries are in Ukraine’s Donbas region, the scene of some of the fiercest fighting of the war. Savorani says the last white-clay-laden ships to dock at the port of Ravenna immediately before the conflict began provided enough raw materials to give companies some stime to look for alternatives. “We’re doing everything possible to diversify supply chains, both by increasing quantities ordered from existing suppliers and by searching for new sources in other regions,” Savorani says. Likely sources range from other European countries such as France, Germany, and Portugal to those farther afield, including India and the United States. Echevarria explains that Spain is in a slightly different position because 40% of its output is based on red-body clay made from materials quarried there in Spain. Other suppliers for that country include Germany, the United Kingdom and Turkey, as well as others. He’s quick to add that utilizing distant sources is currently complicated due to shipping. Using new mixes of materials also means constant reformulation of end products. “New sources imply different combinations of glaze, colors and even different kiln time,” Echavarria says. “A new formula should need to be constant in time, and the lack of raw materials can force us to be flexible and reformulate constantly.” Fortunately, Savorani says that there’s enough difference within different areas of a clay deposit that, “We have engineers, and we have chemists that are working on this all the time. We’re always adjusting.” And what adjustments will end-users of ceramic tiles have to make in the months, years, ahead? For now, the manufacturers are absorbing many of the price increases. Not surprisingly, both organizations agree that when combined with a shortage of raw materials, the situation has become critical for the companies they represent if their members can no longer pass along those cost increases to their products. In Spain, that country’s government has recently approved some compensation measures to offset the consequences of the war in Ukraine. However, Echavarria says, “They are clearly not sufficient to offset the impact on businesses due to high energy costs.”

“We’re doing everything possible to diversify supply chains, both by increasing quantities ordered from existing suppliers and by searching for new sources in other regions.” Giovanni Savorani Chair, Confindustria Ceramica

Confindustria Ceramica has presented some concrete economic proposals to the Italian government which it has asked to be implemented as soon as possible. They include the sale of national gas production to industrial sectors for 10 years, the abatement of certain taxes, and an increase in the remuneration of the technical interruption of service of gas consumption, according to Savorani. Both countries do have another option: the European Union. And, the European Commission has empowered its members to grant direct subsidies and other help up to €50 million for sectors affected by energy costs. Echevarria explains that that means there is the possibility of more ambitious assistance to be adopted at a national level. “Unfortunately, member states like Spain with a high national debt and low GDP (gross domestic product) compared with its European neighbors will not be in position to reach the top state aid offered… and will perpetuate a fragile situation for gas-intensive industries,” he says. There is another option that ceramic companies in both countries have already utilized and don’t want to perpetuate: layoffs. In Italy, some 30 of the country’s 220 ceramics factories stopped production this spring for a few days when the price of gas reached a record level of €3.50 per cubic meter. The furlough agreements were stipulated for 4,000 workers. Fortunately, says Savorani, the stoppages were limited to only a few days of peak gas prices. However, in accordance with European Union rules, furloughs for some of those workers were stipulated through the end of this year. Echavarria notes that because of the time and effort involved in getting a kiln up to optimum temperature, it’s not practical to shut it down and refire it over a brief period. “Temporary shutdowns may happen,” he adds. “They’re most likely during extended breaks in the summer months or around holidays when the kilns would be shut down anyway.” However, one thing is certainly clear to the Italian ceramic industry. “With their origin in the Donbas and the severe damage inflicted on the port of Mariupol, it’s going to be impossible to use white clay from Ukraine for years to come,” Savorani says.