Analysis: The energy crisis is testing the resilience of Italian companies

MILAN, Oct 21 (Reuters) – Italian media had only just begun reporting on the threat of winter gas rationing when Marco Checchi stepped in to ensure cork maker Pelliconi would continue to supply customers such as Coca -Cola, Heineken and Guinness.

Pelliconi, which produces 35 billion capsules a year, mainly in Italy but also in Egypt and China, has accelerated the production of energy-intensive semi-finished products, invested in solar panels and commissioned a prototype of a new digital printer for sheet metal which did not require gas ovens.

“When you’re running a business, if you keep hearing on the news that the gas supply is in danger, you have to do something about it. It’s not like you can start yelling and stomping your feet when they actually stop the streams for two hours a day,” Checchi told Reuters.

Like other Italian companies struggling with the energy crisis triggered by the war in Ukraine, Pelliconi has seen electricity and gas costs more than triple relative to sales this year, compounding the problems posed by the rise in steel prices.

In some cases, it has been able to pass on nearly two-thirds of the cost increases to its customers and plans to raise prices further next year.

Rising prices contributed to Italy’s 16.2% rise in manufacturing sales in July on a calendar-adjusted basis, but volumes also rose 1.7%. This compares broadly to an annual decline of 0.8% in Germany.

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Traditionally lagging among the biggest economies in the eurozone, Italy has seen a stronger post-pandemic rebound in industrial production than France and Germany, said Intesa Sanpaolo economist Paolo Mameli .

After growth exceeded expectations in the first half of the year, the situation quickly deteriorated and the government now expects the Italian economy to have contracted in the third quarter, with the contraction seen to last until mid-2023.

Investors are struggling to measure the extent of the slump that awaits the European economy and indebted Italy.

“The outlook for the euro zone remains unusually uncertain,” Goldman Sachs economists said.

Goldman expects the bloc’s economy to contract around 1% in the second quarter of next year, adding that resilient industrial activity could limit the fall to 0.2% as it approaches 3% in the worst case.

The coping strategies adopted by companies like Bologna-based Pelliconi are part of the equation that will determine the end result, according to UniCredit CEO Andrea Orcel.

“Companies are adapting, it’s wrong to assume they’re not. We see it all the time when we look at our customers: companies are reorganizing their value chains, their logistics, everything,” he said. he recently told a labor conference.

“So far, households and businesses have proved more resilient than expected…markets are very worried about Italy’s performance within the Eurozone, ignoring the fact that Italy continues to grow more than France or Germany,” he added, noting that business deposits had increased by 35%. % compared to pre-pandemic levels.

UniCredit, which finances corporate investment to increase installed renewable energy capacity, said some of its customers in low-energy sectors were able to independently generate 30-40% of their electricity needs, in some cases. up to 50%.

Most companies are rushing to install solar panels, but some are more ambitious. Fasteners maker SBE-Varvit has secured 400 containers of gas which will be shipped to its plant in northeast Italy by January to make up for any shortages.

DIY POWER

Even in a battered industry like ceramics, which, like the glass and paper sectors, has been hit hard by soaring energy bills, high-end tile maker Italcer plans to cover a quarter of its energy consumption. once it has completed the two combined heat and power plants it is building.

“Already in September 2021, there were warnings about what was to come,” CEO Graziano Verdi told Reuters, adding that Italcer faced 60 million euros in additional gas and electricity costs. this year – accounting for 70% of manufacturing costs compared to 20% previously.

“We have invested 10 million euros to build two cogeneration plants and save 4 million euros this year,” he said, adding that Italcer had saved another million by reducing the thickness of roof tiles. 8.5 to 10 millimeters.

“We raised prices by 30 to 35% with a good reaction from the market. A weaker euro certainly helped, as did government support measures.

Outgoing Prime Minister Mario Draghi’s government has earmarked 66 billion euros so far this year for tax breaks and subsidies to help energy-intensive businesses and poor households.

The Italian business lobby Confindustria has warned of a “economic earthquake”saying the new government will struggle to offset the hit in energy prices on companies like Draghi has managed to do without hurting Italy’s fragile public finances.

But others are more positive.

Veteran banker Corrado Passera said Crises made a natural selection among companies and his limitless digital lender (ILTY.MI) continued to face growing demands for financing acquisitions or innovation and internalization projects.

“When you talk to business owners privately…outside of Confindustria…they have great confidence in their ability to respond,” Giuseppe Castagna, who heads Italy’s third-largest bank Banco BPM (BAMI.MI)said recently.

Reporting by Valentina Za and Elvira Pollina; Editing by Keith Weir, Kirsten Donovan


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