Cailian, October 19 (Editor Xiaoxiang) Since the beginning of this year, the unprecedented energy crisis has caused steel and aluminum smelters in many parts of Europe to close down, and now, this wave of closures is even spreading to an area that many people may not pay much attention to: Europe's clothing and textile industry...
Thousands of small factories and workshops that supply well-known brands like Gucci are now having to watch their business models unravel as local gas and electricity prices soar in the wake of the Russia-Ukraine conflict.
According to the European Federation of Clothing and Textiles (Euratex), many textile companies have seen energy costs as a percentage of production costs rise from around 5% to around 25%, cutting their profit margins significantly.
From spinning mills and weaving mills that consume large amounts of electricity to convert bundles of wool into yarn, to dyeing mills that use natural gas-powered industrial printing and dyeing dryers, the entire textile industry chain in Europe is now deeply feeling the pain of 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 mill in northern Italy.
Paccanelli's gas bills in July surged to €660,000 from €90,000 a year earlier.
The energy crisis is eating everything
In Europe, SMEs dominate the industry, often by forging close partnerships with design firms and deepening their specialization over generations. However, some highly industrialized textile sectors are particularly vulnerable at the moment, including man-made fibres (MMF), nonwovens, dyeing and finishing production.
Due to their direct dependence on gas and electricity, these sectors are currently being 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 a critical component in many applications such as healthcare, construction and automotive, and rely heavily on energy. Gas consumption in certain processes, such as dyeing and finishing, is also necessary and cannot be replaced by other technologies.
A year ago, when energy prices were just starting to soar, many small companies were already finding it difficult to absorb the extra costs. Few could have predicted at the time that this was only the beginning of a series of nightmares. Gas prices across Europe have risen nearly tenfold over the past year, reaching an unprecedented price peak in late August this year.
Textile manufacturers say energy prices have risen so high that utilities and other energy suppliers are demanding bank guarantees or cash advances to pay their energy bills in advance for months to come, fearing they won't get the money. In Italy, Europe's largest textile producer, many manufacturers also say they can no longer sign long-term energy purchase agreements that once shielded them from short-term price fluctuations.
Maurizio Sarti, a Tuscany-based luxury wool producer, said he had rushed to complete orders within two months but could not keep up with rising gas prices. "You might have just set a price and then the price of natural gas doubled," he said. I can't pass on these gains to my clients. ”
Often, it is difficult for fabric manufacturers to simply pass on these higher costs to buyers, as these companies are obligated to deliver goods at prices agreed months ago under pre-concluded contracts.
And even if these manufacturers now want to lock in energy prices through long-term contracts, it is not easy to do so today.
Guido Nesti owns a dyeing factory in Prato, Italy, with a total of 30 employees. In September, he was in talks with a gas supplier to renew a purchase agreement that usually lasts a year or more. Like many business owners in Italy, Nesti is accustomed to negotiating late in the summer, when demand for fuel is low and storage facilities across the continent are often filled.
But this time, Nesty said, the seller asked him to advance at least two months' gas bills in cash. He immediately questioned it. He said gas prices were already 10 times higher than they were a year ago, and the cost of two months in advance was unheard of.
Nesti informed its regional counterpart, Fabio Reali, whose gas purchase agreement also expires in December. Reali calculates based on his energy bills for July and August that if his energy supplier makes a similar request, he will have to come up with about 1 million euros to pay his gas bills for two months. To survive the year, he may have to spend at least half of his €10 million a year on energy bills, compared to 10 percent of which he used to spend.
Reali said the cost of gas has gone from "one of thousands of commercial costs" that he rarely considers to "a monster that is eating us away."
A nightmare for the European textile industry
At present, a series of problems surrounding energy bills have even sharply divided the industrial landscape within Europe: those that are struggling to insulate their industries from soaring gas prices, and those that cannot afford to bear the burden.
Germany recently announced energy relief measures worth nearly 300 billion euros, including price limits on electricity and gas. France also plans to spend 100 billion euros on its own crisis response. In contrast, Italy, which has a well-developed textile industry, may not have the financial resources to take similar measures. Italy is still saddled with debt equivalent to 150 percent of its gross domestic product, and incoming prime minister, Giorgia Meloni, has vowed to rein in public spending.
According to Bruegel, a Brussels-based think tank, Italy allocated 59 billion euros (equivalent to 3.3% of GDP) to measures to protect businesses and households from the energy crisis. Germany has allocated 100 billion euros, or 2.8% of its GDP, and France has allocated 72 billion euros, or 2.9% of its GDP.
Jean-François Pierre Gribomont, chairman of textile company Utexbel NV, said the divergence was undermining the EU's single commodity market. For example, he said, his weaving operations in Belgium cost 193 euros per megawatt-hour, double the amount a year ago. In France, thanks to government subsidies, the cost per MWh is 123 euros, an increase of 50% over the one-year period.
"Why should we have a common Europe if every country is just sweeping its own doorstep," he noted.
Michael Engelhardt, head of energy policy at Textil+Mode, a textile and apparel industry association in Berlin, said German textile and fashion companies may benefit more from government aid than their counterparts in some other European countries, but they still have to compete with other industries in the country for public funding.
This also raises a new question: who can guarantee that textile subsidies will continue to exist even after the energy crisis intensifies in winter? Some fabric makers are already concerned that if European governments are forced to restrict gas supplies this winter, they will have to be at the back of the relief queue because their products are generally considered less important than other energy-intensive industries such as glass and metal.
"People might say, 'Look, even if you're missing a new shirt, it's not going to be the end of the world, understand?'" Dirk Vantyghem, director general of trade organization Euratex, said.
Of course, the most worrying thing for the European textile industry at the moment may be that the industry's decades of advantages may be lost.
A steady supply of cheap Russian gas has allowed manufacturers across Europe to prosper over the past few decades, even amid increasing competition abroad. But today, rising prices could prompt many fashion companies and retailers to move their operations outside of Europe, where energy prices are lower.
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 maker that supplies Zara, H&M and other well-known brands, said orders from him and other textile makers near Prato have fallen 50 percent this year. Prato is a major textile center in Italy.
According to the World Trade Organization (WTO), Europe's share of global textile exports has been declining over the past 20 years. As of 2020, China's share tripled to more than 40%, more than double the EU's share in 2020.
So what's really hanging in the air right now are up to 1.3 million textile manufacturing jobs across the EU...
This article is from Cailian News Agency Xiaoxiang