Europe risks deindustrialization as soaring energy prices prompt corporate shutdown, exodus

FRANKFURT, Oct. 6 (Xinhua) -- European corporations have been forced to reduce or halt production and shift investments to the United States to reduce costs amid soaring energy prices.

Many industry observers warned that a prolonged energy crunch could erode Europe's industrial structure for good, and the shutdown and exodus of European companies have sparked a deeper concern over the risk of deindustrialization on the continent.

The stubbornly high energy prices have already taken a toll on European companies. Dutch aluminum maker Aldel said it is halting primary aluminum production because of surging electricity prices. Dutch fertilizer producer Yara Sluiskil has shut its fertilizer plant.

Netherlands-headquartered Rabobank said that more energy-intensive companies, such as those in the chemical, paper, metalwork, rubber and plastic industries, will be forced to reduce or halt their production in the future.

Nicolas de Warren, president of Uniden, the federation of energy-intensive industries in France, said that due to energy price spikes, energy-intensive companies in France are not capable of producing products with competitive prices.

European non-ferrous metals association Eurometaux said 50 percent of the EU's aluminum and zinc capacity has already been forced offline due to the power crisis, with significant curtailments in silicon and ferroalloys production and further impacts felt across the copper and nickel sectors.

Meanwhile, investment outflows from Europe to the United States are rising due to high energy prices.

German media reports showed that German flag carrier Lufthansa, multinational conglomerate corporation Siemens, supermarket brand Aldi and health care company Fresenius, four out of the more than 60 German companies in Oklahoma, have jointly added 300 million U.S. dollars of investment in the U.S. state.

The German auto industry has also increased investment in the United States. For example, Volkswagen in June laid the foundation for a new battery laboratory in Tennessee and has committed 7.1 billion dollars in supplier partnerships in North America through 2027. Mercedes-Benz and BMW have made similar investments.

German pharmaceutical giant Bayer has put 100 million dollars into a biological technology center in Boston, Massachusetts. Chemical group Evonik Industries AG has set up an innovation center in Pennsylvania and has committed over 200 million dollars to a production base in Indiana. Chemical heavyweight BASF has announced it will invest around 3.9 billion dollars in North America through 2026.

The number of German companies planning to expand business in Virginia has grown from two in 2021 to six this year, said the Virginia Economic Development Partnership.

Such a change in the scale of investment flows from Europe to the United States is partly the result of the U.S. Federal Reserve's aggressive rate hikes that have led to a widening interest rate gap between the United States and Europe, according to John Bryson, professor at the University of Birmingham.

Oliver Falck, director of the ifo Center for Industrial Organization and New Technologies in Germany, said if energy prices remain high, some industries will leave Germany forever.

Other German business insiders worry that the country could lose its competitive edge in manufacturing, slamming Europe's largest economy. Europe could see its metal, chemical, glass, ceramic and paper industries collapse over time, de Warren warned.

"We are deeply concerned that the winter ahead could deliver a decisive blow to many of our operations, and we call on EU and member state leaders to take emergency action to preserve their strategic electricity-intensive industries and prevent permanent job losses," said Eurometaux, warning of an "existential threat" to energy-intensive companies.