Since the beginning of this year, the unprecedented energy crisis has caused steel plants and aluminum smelters to close down in many places in Europe. Now, this wave of bankruptcies is even spreading to an area that many people may not pay much attention to: the European clothing and textile industry. …
Thousands of small factories and workshops that supply well-known brands such as Gucci are now having to watch their business models unravel as local gas and electricity prices soar in the wake of the Russian-Ukrainian conflict.
Data from the European Clothing and Textile Federation (Euratex) shows that energy costs have risen from about 5% to about 25% of production costs for many textile companies, which has significantly cut into their profit margins.
From spinning mills and weaving mills that consume large amounts of electricity to convert bales of wool into yarn, to dyeing mills that use industrial printing and dyeing dryers powered by natural gas, the entire textile industry chain in Europe is now being We deeply feel the pain caused by the energy crisis.
“The situation now is that the textile industry across Europe is at risk of bankruptcy,” said Alberto Paccanelli, who runs a textile factory in northern Italy.
Paccanelli was shocked when his gas bill in July soared to €660,000 from €90,000 a year earlier.
The energy crisis is devouring everything
In Europe, small and medium-sized enterprises often dominate the industry by establishing close partnerships with design firms and deepening their specialization over generations. However, some deeply industrialized areas of the textile industry are particularly vulnerable at the moment, including man-made fibers (MMF), nonwovens, dyeing and finishing production.
Due to their direct dependence on natural gas and electricity, these sectors are currently severely affected by high energy prices. If man-made fibers disappear from the European textile market, this will increase the EU’s dependence on foreign textile imports.
Nonwovens are critical components in many applications, including healthcare, construction and automotive, and rely heavily on energy. Gas consumption for certain processes such as dyeing and finishing is also necessary and cannot be replaced by other technologies.
A year ago, when energy prices first began to soar, many small companies were already finding it difficult to absorb the additional costs. What few could have predicted at the time was that this would ultimately be just the beginning of a series of nightmares. Natural gas prices across Europe have risen nearly tenfold over the past year, reaching an unprecedented price peak in late August this year.
Textile manufacturers have said that current energy prices have risen so high that utility companies and other energy suppliers have even begun to require textile companies to obtain bank guarantees or cash advances to pay in advance for fear of not getting the money. Energy bills for the coming months. In Italy, Europe’s largest textile producer, many manufacturers also say they are no longer able to enter into long-term energy purchase agreements that once shielded them from short-term price swings.
Maurizio Sarti, a luxury wool producer based in Tuscany, Italy, said he had been rushing to fulfill orders within two months but was still unable to keep up with rising gas prices. “You might just set a price and then the price of gas doubles. I can’t pass those increases on to my customers,” he said.
Typically, it is difficult for fabric manufacturers to simply pass on these higher costs to buyers because the companies are obligated by pre-existing contracts to deliver goods at prices agreed upon months ago.
And even if these manufacturers now want to lock in energy prices through long-term contracts, it is by no means easy to do now.
Guido Nesti owns a dyeing factory in Prato, Italy, with a total of 30 employees. In September, he was in talks with gas suppliers to renew a purchase agreement that typically lasts a year or more. Like many business owners in Italy, Nesti is used to negotiating at the end of summer, when demand for fuel is low and storage facilities across the continent tend to be filled.
But this time, Nesti said, the seller asked him to advance cash equivalent to at least two months of gas bills. He immediately questioned this. He said that the price of natural gas is already 10 times higher than a year ago, and an advance payment of two months is unheard of.
Nesti informed this news to his regional counterpart Fabio Reali, whose gas purchase agreement is also set to expire in December. Reali calculated based on his energy bills for July and August that if his energy supplier made a similar request, he would have to come up with around 1 million euros to pay for two months of gas. To get through the year, he is likely to have to spend at least half of his €10m annual income on energy bills, whereas in the past he usually spent only 10% of that.
Reali said the cost of natural gas has gone from “one of thousands of business costs” he rarely considered to “a monster that’s eating us alive.”
A nightmare for the European textile industry
At present, a series of issues surrounding energy expenditure have even led to a sharp differentiation in the industry structure within Europe: On one side are those who are working hard to protect their domestic industries fromOn the other hand, European countries affected by soaring gas prices are those that cannot afford the burden.
Germany recently announced energy relief measures worth nearly 300 billion euros, including price limits on electricity and natural gas. France also plans to spend 100 billion euros on its own crisis response. In contrast, Italy, which has a developed textile industry, may not have such strong financial resources to take similar measures. Italy is still saddled with debt equal to 150% of gross domestic product, and incoming Prime Minister Giorgia Meloni has vowed to rein in public spending.
As of the end of September, Italy had allocated 59 billion euros (equivalent to 3.3% of GDP) to measures to protect businesses and households from the impact of the energy crisis, according to Brussels think tank Bruegel. Germany has allocated 100 billion euros, accounting for 2.8% of its GDP, and France has allocated 72 billion euros, accounting for 2.9% of its GDP.
Jean-Francois Pierre Gribomont, chairman of textile company Utexbel NV, said the disagreement was undermining the EU’s single market for goods. As an example, he said the energy bill for his weaving operation in Belgium was 193 euros per megawatt hour, double what it was a year ago. In France, due to government subsidies, the cost per megawatt hour is 123 euros, an increase of 50% from the one-year period.
“Why do we have a common Europe if every country is just cleaning up its own business,” he pointed out.
Michael Engelhardt, head of energy policy at Berlin-based textile and apparel industry association Textil+Mode, said German textile and fashion companies may benefit from government aid more than their counterparts in some other European countries, but they still have to compete with other domestic industries for public funds. .
This also brings up a new question: Who can guarantee that subsidies in the textile industry will continue to exist once the energy crisis intensifies further in winter? Some fabric makers are already worried that they will have to be at the back of the relief queue if European governments are forced to restrict gas supplies this winter, as their products are generally considered less important than other energy-intensive industries such as glass and metals. .
“People might say, ‘Look, even if you lack a new shirt, it’s not the end of the world, understand?'” said Dirk Vantyghem, director general of trade group Euratex.
Of course, what worries the European textile industry most right now may be that the advantages accumulated in this industry for decades may be lost in one fell swoop.
A steady supply of cheap Russian natural gas has allowed manufacturers across Europe to prosper over the past few decades, even as competition from abroad intensified. But now, rising prices may prompt many fashion companies and retailers to move operations outside Europe, where energy is cheaper.
Suppliers say some brands have moved production to other countries with lower production costs, such as Turkey, rather than absorbing additional costs in countries such as Italy.
Enrico Gatti, a wool manufacturer that supplies Zara, H&M and other well-known brands, said orders for him and other textile manufacturers near Prato have dropped by 50% this year. Prato is a major textile center in Italy.
According to data from the World Trade Organization (WTO), Europe’s share of global textile exports has continued to decline over the past 20 years. As of 2020, China’s share has tripled to over 40%, more than double the EU’s 2020 share.
Therefore, what is really up in the air right now is the 1.3 million textile manufacturing jobs across the EU…
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