We have written twice over the last week concerning the energy crunch, first in China and then India.

Thermal coal prices have risen to record levels, threatening to impact GDP growth as a result of electricity rationing.

The Financial Times observes that China has suffered a triple whammy of emissions restrictions on power generation, a shortage of coal, and price caps on electricity that mean demand is unaffected as input costs have risen.

India, which relies heavily on coal for its thermal power plant, is facing tight supplies and record prices. Nationally, it has only four days of stocks left.

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Europe energy costs on the rise

E.U. flag

Andrey Kuzmin/Adobe Stack

But energy — whether it is in the form of coal, natural gas or oil — is a global commodity. Both Europe and the U.S. find themselves with their own set of challenges, more skewed to the tight natural gas market and rising global oil prices.

The U.K. is not alone but is possibly the most acutely exposed to Europe’s reliance on imported natural gas, particularly from Russia.

U.S. gas contracts for November delivery surged nearly 40% this week to hit £4 per therm (having started 2021 below 50p).

But a surprise announcement by Vladimir Putin yesterday saying Russia was prepared to increase supplies to stabilize prices prompted a sharp sell-off, sending the price down to £2.87.

Whether it stays there will depend in large part on whether Russia can honor that commitment in the months ahead. Russian state gas supplier Gazprom has come under intense criticism for deliberately shipping to no more than its minimal contractual obligations this year. The reality is Russia’s own inventory levels are also depleted after a harsh winter.

It is probably fair to say Europe’s energy markets are particularly exposed to supply disruptions despite supposedly being highly integrated.

Many large industrial consumers have complained that the E.U.’s Green Deal to make the bloc climate neutral by 2050 will only push up energy prices further. In turn, that could ultimately lead to social unrest. For example, high energy prices resulted in the French “gilets jaunes,” or yellow vests, demonstrations in 2018-2019.

Inflation, energy cost impacts

Rising energy prices have fueled inflation that was already being stoked by commodity price increase and supply chain problems for much of this year. Rising energy costs and inflation have been contributing factors in the August fall in German industrial orders. Orders fell 7.7%, a far sharper fall then economists had expected.

Meanwhile, rising energy costs have prompted the closure of large energy consumers across Europe, such as ammonia and fertilizer production. Meanwhile, in the U.S., oil prices this week hit the highest level in seven years after OPEC+ decided to maintain current production levels, which will see a planned increase of just 400,000 barrels a day from November.

U.S. administrators have talked about release from the strategic petroleum reserve and even limits or a ban on U.S. exports of crude oil to limit domestic oil price rises. The average price of gas at the pump has reached $3.19 a gallon, the highest in seven years.

The U.S. economy does not appear to be unduly hindered by the price rises yet. The private sector added a higher-than-expected 568,000 jobs in September, the biggest rise in three months.  However, with midterm elections next year, high gas prices will not go down well with voters.

Looking ahead

Buyers of European components may expect to see some inflation in prices this year and next. Cost increases are coming, not just from metal prices but energy, wage costs and continuing logistics delays in Europe.

It is to be hoped the continent copes through this winter and cost increases do not derail the recovery. While manufacturers have been riding a wave of unprecedented demand recovery, it should not be mistaken as unstoppable.

A number of factors are converging to push up costs while potentially dampening demand. That makes a toxic mix for a still fragile recovery.

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This morning in metals news: Nucor Corporation announced the launch of a line of net-zero carbon steel products; meanwhile, the American Iron and Steel Institute released September import permit application data; and, finally, average U.S. home mortgage rates continue to hover around 3%.

Are you under pressure to generate steel cost savings? Make sure you are following these five best practices

Nucor announces new line of net-zero carbon steel

Nucor logo

Postmodern Studio/Adobe Stock

Nucor announced it is launching a new line of net-zero carbon steel products.

The steelmaker said General Motors will be the first recipient of the new Econiq™ line of net-zero carbon steel products.

“General Motors will receive the Econiq net-zero steel beginning in Q1 2022, and it is projected that all steel purchased by GM from Nucor will be net carbon neutral by the end of 2022,” Nucor said.

Steel import permit applications jump in September

U.S. steel permit import applications for September surged by 8.8% from August to September, the American Iron and Steel Institute reported.

September import permit application tonnage totaled 2.87 million net tons.

Furthermore, estimated finished steel import market share reached 22% in September, up from 20% for the year to date.

Home mortgage rates remain around 3%

U.S. mortgage rates dipped slightly this week, mortgage loan company Freddie Mac reported.

The average 30-year fixed rate mortgage this week dipped to 2.99%, down by 0.02 percentage point from the previous week. The 15-year rate fell to 2.23%.

“Mortgage rates continue to hover at around three percent again this week due to rising economic and financial market uncertainties,” Freddie Mac noted. “Unfortunately, with the expectation that both mortgage rates and home prices will continue to rise, competition remains high and housing affordability is declining.”

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