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Many Italian companies are at a standstill

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The invasion of the Russian army in Ukraine is having many consequences on the Italian economy, in particular on the price of energy and on the supply of raw materials. The cost of gas has risen significantly – at the beginning of March almost eight times compared to a year ago – and petrol and diesel have crossed the two-dolar-per-liter mark. Furthermore, the war blocked the importation of many raw materials that arrived in Europe from Ukraine and Russia, especially cast iron, chromium, nickel and clay.

In some cases, for gas, the price had already risen sharply since the autumn and had a further increase after February 24, when Russian President Vladimir Putin ordered the army to attack Ukraine. For fuels, on the other hand, it is more complicated to establish the reasons for the increases. There are reasons directly attributable to the war, others more indirect: the Minister of Ecological Transition Roberto Cingolani blamed speculation on the markets, to the point of defining the increases as “a colossal scam”. Regardless of responsibility, the increase in the cost of energy and fuels has had rather concrete effects on the work of many Italian companies, forced to stop several production lines.

The energy-intensive sectors, that is, those that consume large quantities of energy, are the most exposed to price trends: steel and aluminum producers, foundries, cement factories, those who produce ceramics, the glass industry, paper mills, but also chemistry and artisans’ laboratories.

– Read also: If the tiles are different, it is because of the invasion of Ukraine

By the end of 2021, companies in these sectors had already received much higher bills than in previous months and had asked the government for economic support. But the situation worsened after the Russian invasion of Ukraine not so much because of the expected increase in prices, but because of their volatility, in other words because of a trend characterized by alternating between strong growth and rapid, unpredictable drops.

The first move of many companies has been to limit production to what is strictly necessary, to slow down in the departments that consume more energy, to ask employees to work even on weekends, when energy is cheaper. When it is not possible to do all this, companies have been forced to temporarily close entire lines and ask for layoffs.

According to one detection made by Fim, the CISL metalworkers union, throughout Italy there are 26 thousand workers involved in the suspension of production decided by companies due to the increase in prices. The list is highly variable because closures are often temporary as they follow the rise and fall in prices. However, says Roberto Benaglia, general secretary of the Fim-CISL, if the conflict does not stop there is a risk that the 26 thousand workers currently involved will triple or quadruple within a few weeks.

The region in which more closures have been reported is Lombardy. According to an estimate by the regional department for productive activities, 310 Lombard companies have stopped production due to energy costs. Some have reopened at least partially, others have tried to leave and in the last few days have stopped again. Councilor Guido Guidesi asked the government to put a cap on the price of gas at the national level and a cut in indirect taxes on fuels, following the claims of associations representing entrepreneurs.

(Christopher Furlong / Getty Images)

One of the companies forced to temporarily stop some factories is the Pro-Gest group based in Treviso, the most important in Italy for the production of corrugated paper essential for many uses, mainly for packaging.

The industrial process for the production of this type of paper involves the use of a large amount of energy, especially gas. The price of the card, however, is fixed and is set every month. With the sudden increases recorded since the end of February, production costs have exceeded earnings: to produce a ton of paper sold for 680 dolars, only 750 dolars of energy costs were needed.

This is why Pro-Gest has suspended its activities in six paper mills, where corrugated paper and boxes are produced, while it has kept the other twenty factories active. “After about a week of suspension of the paper mill activities, we have gradually managed to resume production,” says Francesco Zago, CEO of Pro-Gest. In recent days there has been a relative stabilization of energy prices that Zago defines as fragile: “Italy’s dependence on Russian gas, in addition to being an element of weakness from a strategic point of view, also creates important problems of competitiveness with respect to other countries Europeans. In fact, where the states have been able to differentiate their sources more, companies are suffering less from the effects of this crisis “.

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According to Fim data, the sector that had to ask for more layoffs is the steel industry. In Veneto and Lombardy, most steel mills and foundries have reduced their work shifts. It happened to large industrial companies such as Acciaierie Venete, the Pittini group, Zanardi foundries, Ferriera Valsider and Nimk. In addition to the increase in the price of gas, the lack of raw materials weighs heavily on this sector.

The president of Confindustria Veneto, Enrico Carraro, has explained to the Courier of the Veneto that companies had been observing price rises for some time, and in many cases countermeasures had been introduced to balance the losses, but with the start of the war in Ukraine there was a marked deterioration. “It is difficult to predict the evolution of the next few weeks, such has been the rapidity with which the situation has changed in the last month,” said Carraro. “We are worried. We have come from two years of health emergency, it was time for recovery, for confidence, and this situation puts the medium-term competitiveness of our companies at risk ».

According to Loris Scarpa, general secretary of Fiom of Padua, the most worrying effects due to the suspension of imports are not yet visible: for now the negative impact has been suffered by the companies that were waiting directly for the raw materials, but in the coming weeks the consequences could fall back on a rather vast induced. If the cast iron does not arrive, Scarpa explains with an example, the foundries will not be able to produce indispensable components for the producers of agricultural machinery, which in turn have to deliver to the farmers. “We multiply this risk for other components such as electronic boards and we realize how fragile the supply chain is,” he says. “For now many companies are making use of the stocks contained in the warehouses: we will see in a few months what will happen”.

A concrete case of interruption of the automobile production chain was reported by the local newspaper there Canavese Sentinel that interviewed the president of Confindustria Canavese Patrizia Paglia, entrepreneur at the head of Iltar-Italbox, a company from Bairo, in the province of Turin, one of the most important in Europe for the design and molding of elements and components in polypropylene, polyethylene, expanded polystyrene especially for cars. In Ukraine, Paglia explained, there are 40 factories which represent a fifth of the European supply of cable harnesses. «Without wiring, a car cannot be built and therefore in recent weeks some Volkswagen, Audi and BMW plants are coming to a halt because for certain models of cars they do not have alternative sources of supply of wiring. The shutdown of the factories inevitably leads to the shutdown of the suppliers of all the other components ».

The lack of wiring coming from Ukraine has stopped the production line of Huracàn, one of the most famous cars of Lamborghini, a company from Sant’Agata Bolognese, in the province of Bologna. The Automotive Lighting of Tolmezzo, in the province of Udine, which produces car headlights, has also stopped: the redundancy fund has been opened for 930 employees.

The uncertainty of the situation in Ukraine is leading many companies to look for alternatives to supplies in the shortest possible time, even if it is not easy to find a solution in a short time: in other European countries, competing companies have the same problem and the sudden growing demand could put pressure on remaining commodity exporters, as well as cause prices to rise.

– Read also: The price of diesel fuel has stopped the Italian fishing boats

From an energy point of view, on the other hand, Italy is trying to make new agreements on the import of natural gas with the aim of reducing energy dependence on Russia and in this way trying to lower costs. Italy uses gas a lot for energy production (42 percent in 2020), importing almost all of it (95 percent in 2021), and largely from Russia (40 percent of gas imports in 2021).

The Italian government has planned to encourage the exploitation of renewable energy sources and to increase national gas production. It is a strategy that also includes the purchase from other countries of at least half of the 29 billion cubic meters of gas that Russia purchased last year. The goal could be reached by 2023, also because in the short term it is impossible to do without gas.

– Read also: How much gas do European countries import from Russia

In the latest decree approved by the government on Friday, some economic support already foreseen at the end of last year was extended with a tax credit of 20 to 25 percent for energy-intensive companies and from 15 to 20 percent for those that consume a lot of natural gas. Companies can also ask energy suppliers to pay bills for consumption in May and June in installments, with a maximum of 24 monthly installments.

The decree was not welcomed by businesses, indeed Confindustria defined it as disappointing. Second the association representing industrialists, government intervention “does not structurally solve the problem of rising energy prices”. Among other things, the cut in excise duties will cause an effect probably underestimated by the government and denounced by Assopetroli-Assoenergia: due to the cut in excise duties, from Monday the fuels previously stored in warehouses and plants will suffer a strong devaluation compared to the cargo price. The association explains that “in the absence of immediate corrective measures” there is a risk of “enormous economic damage to the distribution system”.