— This is the script of CNBC's financial news report for China's CCTV on November 4, 2022.
The European industry has been hard hit in recent months. Due to rising energy prices caused by the Russia-Ukraine conflict, coupled with increasing fuel shortages, nearly 10% of Europe's crude steel production and half of its primary aluminum production are idle. Meanwhile, only half of the total capacity of the fertilizer industry is being utilized.
The European industrial sector has taken different approaches to save itself from the worsening energy crisis. Take Germany, Europe's largest economy, as an example. This week, the German Chamber of Commerce and Industry published its latest member survey. According to a survey of 24,000 companies, high energy and raw material prices were identified as the greatest business risk. Among the main responses are shifting costs downstream, investing in energy efficiency measures, shrinking production, switching to alternative energy sources, etc. There is one item that deserves our attention, and that is the relocation of production lines.
In energy-intensive industries, on average, one out of twelve companies, or approximately 8%, are considering relocation of production lines due to rising costs. Among them, automotive manufacturing accounts for the highest percentage of this percentage, at 17%.
One of the most popular relocation destinations is the United States. The main reason for this is the relatively low energy prices in the United States.
Despite a decline in natural gas prices in Europe in the last two months, they remain approximately five times higher than those in the United States. Citigroup's global head of commodities research, Ed Morse, believes that European gas prices will not reach U.S. levels until 2026 or even 2027, when LNG imports by Europe replace Russian gas supplies. Thus, the U.S. has benefited from the European energy crisis in two ways: by exporting LNG to Europe and by attracting European companies to invest in the U.S.
Ed Morse
Global Head of Commodities Research and Managing Director at Citi
"Europe unfortunately, is seeing energy intensive industries migrating out. Europe, closing down zinc smelting, aluminum smelting. So the US industry and the US economy is benefiting, while Europe suffers."
For example, Shell, an energy company based in the United Kingdom, decided in 2016 to invest $6 billion in a petrochemical plant near Pittsburgh, Pennsylvania, due in part to the site's proximity to natural gas sources. It is anticipated that the plant will begin production by the end of the year. Ben van Beurden, CEO of the company, stated that the move to the Americas looks more structurally advantageous now, and this may continue in the future.
Despite low energy prices, however, some phenomena in American society, such as the polarized and fragmented social environment, are also worrisome to European executives.
The constant debate on issues such as abortion rights and racial discrimination, political stalemate on immigration policy, tight labor market supply and demand, plus the confrontation between the two parties on environmental issues, are all risk factors that European companies need to consider when investing in the United States.