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Sabic Shuts U.K. Factory, Toughglass Cuts as Gas Prices Double

Post Time:Jul 18,2008Classify:Industry NewsView:544

July 18 (Bloomberg) -- U.K. glass, plastics, chemicals and cement companies are cutting workers and mothballing plants as energy costs more than double.

Huhtamaeki Oyj, the Finnish supplier of packaging to McDonald's Corp., is cutting 160 jobs, or 39 percent of its U.K. workforce. Toughglass Ltd. fired 60 workers, or 55 percent of the employees. Castle Cement Ltd. may idle kilns. Saudi Basic Industries Corp., the world's biggest chemical company, will close two units in Northern England, losing 200 jobs, or 22 percent of the local payroll.

British manufacturing fell in May to an eight-month low and the British Chambers of Commerce said July 8 the country faces ``serious risks of recession.'' Natural gas prices doubled in the past year after U.K. North Sea production fell 9.5 percent, the most in more than a decade, while coal for delivery next year soared 144 percent.

``Gas is expensive, coal's pretty expensive, and that's before you take into account the price of carbon,'' said Jeremy Nicholson, director of the Energy Intensive Users Group, whose members include the steel, chemicals and glass industries. ``The premium we're paying now, typically 30 percent more on an annual basis for wholesale power compared with Germany, is a big competitive disadvantage.''

U.K. power rose 124 percent during the past year to 89.23 pounds ($170) a megawatt-hour for delivery in the year starting in October, according to broker Spectron Group Ltd. A similar contract for German supplies traded at 88 euros ($132) on July 17. Carbon emissions costs are up 34 percent in a year to 25.76 euros a metric ton on the Intercontinental Exchange.

Costs Triple

The U.K. economy, Europe's second largest after Germany, lost 15,500 jobs in June, the biggest monthly increase since the aftermath of the last recession in 1992, government figures show. Growth this year will slow to 1.7 percent, barely half of 2007's 3 percent expansion, according to forecasts compiled by Bloomberg.

The energy used in glass, plastics and cement manufacturing at today's prices can account for more than 30 percent of costs, almost triple the proportion three years ago.

``We're getting the full brunt of increases in the wholesale price of gas and electricity,'' David Workman, director general of the British Glass Manufacturers Association, said in a telephone interview from Sheffield. ``It's looking pretty bleak.''

Higher costs may drive glass production to Eastern Europe, where energy prices are lower, he said.

Toughglass, which makes windows for double-decker buses, plans to shut unprofitable operations to protect the remaining 50 jobs at its plant in Kilkeel, Northern Ireland.

Overseas Competition

``During the last 12 months the company has experienced significant cost increases in electric, raw material and fuel,'' Toughglass Chief Executive Officer John Agnew said in an e-mail. ``We have faced significant competition from lower cost competition from overseas.''

Huhtamaeki shares tumbled 21 percent in Helsinki last month as raw-material costs rose and sales ebbed in the U.K. and North America. Spokeswoman Minna Staffans said the company will fire 90 people at Gosport in southern England and 70 in Portadown, Northern Ireland. The increased cost of manufacturing is one of the reasons, she said.

The ``relentless increases'' in energy costs are ``significant'' reasons for Saudi Basic's decision to close plants in northern England, Bill Perfitt, U.K. public relations director, said in a July 16 phone interview.

`Biggest Cost'

``Electricity is now our biggest single variable cost,'' David Holden, electricity procurement manager at Castle Cement Ltd., a unit of HeidelbergCement AG, said in an interview. ``We're looking at short-term shutdowns.''

Manufacturers are trying to pass on the costs to consumers and lock in prices for future supplies.

Pilkington Group Ltd., a unit of Japan's Nippon Sheet Glass Co., added a surcharge linked to oil to its European sales agreements, said spokesman David Roycroft. The company also improved its energy efficiency and hedged prices to reduce exposure to fluctuating costs, he said.

Glass, paper, steel, brick and chemical plants in the U.K. were forced to close in the winter of 2005 and 2006 after a surge in power costs. Prices are now ``a lot worse,'' according to Workman.

Members of the U.K.'s glass trade association are discussing investing in gas storage units to protect against price swings, he said.

To contact the reporter on this story: Paul Dobson in London at

Source: BloombergAuthor: admin

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