Europe’s Industry Risks ‘Demand Destruction’ Over Price Hikes
Europe’s industrial producers like BASF SE and Yara International ASA so far have managed to pass on soaring energy costs to customers, shielding their profits. There’s a risk to that strategy: They could wipe out future sales.
Most of the region’s energy-intensive firms have either hedged against record electricity and gas prices or are getting customers to cover higher costs. While that’s likely to see limited fallout for a slew of third-quarter company earnings due over the next two weeks, the question is how much longer buyers of chemicals, paper and metals products are willing to swallow price hikes.
“The biggest risk ahead is demand destruction given the inflation wave passing through to the end consumer,” said Peter Clark, a chemicals analyst at Societe Generale SA. Cratering sales could weigh on companies’ pricing power and profit margins next year, he said.
Power and gas prices have been fluctuating wildly this month, a squeeze that’s expected to intensify as winter approaches. The surge threatens to put the brakes on an economic rebound by jacking up business costs and household energy bills, sending inflation to multi-year highs.
While the energy crisis took hold only late in the third quarter, some companies are already feeling the pinch.