Analysis: Energy crisis tests resilience of Italian companies

  • Responding to the energy crisis is key to the economic outlook
  • Businesses more resilient than credit given, bankers say
  • Italy’s better-than-expected year-to-date performance

MILAN, Oct 21 (Reuters) – Italian media are just starting to talk about winter as Marco Checchi moves to ensure that bottle cap maker Pelliconi will continue to supply customers including Coca-Cola, Heineken and Guinness Threats to natural gas rationing.

Pelliconi, which produces 35 billion caps a year, mainly in Italy but also in Egypt and China, has ramped up production of energy-intensive semi-finished products, invested in solar panels and commissioned a prototype of a new digital printer for sheet metal No gas stove required.

“When you’re running a business, if you keep hearing that the gas supply is in danger, you have to do something. You can’t start screaming and stomping when they do stop flowing for two hours. God,” Che Qi told Reuters.

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Like other Italian businesses battling an energy crisis triggered by the war in Ukraine, Pelliconi’s electricity and gas costs have more than tripled compared to this year’s turnover, compounding the problems caused by rising steel prices.

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

Higher prices pushed Italian manufacturing turnover up 16.2% (calendar-adjusted) in July, but sales also rose 1.7%. In contrast, Germany fell by 0.8% per year.

darken the picture

Intesa Sanpaolo economist Paolo Mameli said Italy, which has traditionally lagged behind among the euro zone’s largest economies, has experienced a stronger rebound in industrial output than France and Germany.

After growing more than expected in the first half of the year, the situation deteriorated rapidly and the government now expects the Italian economy to contract in the third quarter and to continue until mid-2023.

Investors struggled to gauge the depth of the recession awaiting Europe and debt-laden Italy.

“The euro zone outlook remains exceptionally uncertain,” Goldman Sachs economists said.

Goldman Sachs expects the euro zone economy to contract by about 1% by the second quarter of next year, adding that resilient industrial activity could limit the decline to 0.2% and closer to 3% in a worst-case scenario.

UniCredit chief executive Andrea Orcel said the coping strategies employed by companies such as Bologna-based Pelliconi were the deciding factor.

“Companies are adjusting, and it would be wrong to assume they’re not adjusting. We see this all the time when we look at our customers: Businesses are retooling their value chains, logistics, everything,” he told a recent labor conference.

“Households and companies have proved more resilient than expected so far… The market is very concerned about Italy’s performance in the eurozone, ignoring the fact that Italy continues to grow faster than France or Germany,” he added, noting Corporate deposits increased 35 percent compared to pre-pandemic levels.

UniCredit, which finances company investments to increase installed renewable energy capacity, says some of its customers in non-energy-intensive industries are able to independently generate 30-40% of their electricity needs, and in some cases as much as 50%.

Most companies are scrambling to install solar panels, but some are more ambitious. Fastener manufacturer SBE-Varvit has secured 400 gas containers to be shipped to its factory in northeastern Italy by January to make up for any shortages.

do-it-yourself power

Even in the ceramics industry, which has been hit hard by soaring energy bills like the glass and paper industries, high-end tile maker Italcer expects to cover a quarter of its energy consumption once it completes two combined heat and power plants. Under construction.

“As early as September 2021, there were warnings about what was to come,” Chief Executive Graziano Verdi told Reuters, adding that Italcer faced additional scrutiny this year. €60 million in gas and electricity costs – 70% of manufacturing costs, compared to 20% previously.

“We invested 10 million euros to build two combined heat and power plants and saved 4 million euros this year,” he said, adding that Italcer saved another 1 million euros by reducing the thickness of the tiles from 10mm to 8.5mm .

“We raised prices by 30-35% with a good market reaction. 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 in tax breaks and subsidies to help energy-intensive businesses and poor households.

Italian business lobby group Confindustria has warned of an “economic earthquake”, saying the new government will struggle to offset the hit to companies such as Draghi from energy prices, which have managed to do so without hurting Italy’s fragile public finances .

But others are more positive.

Corrado Passera, a veteran banker, said the crisis made a natural selection among businesses, and his digital lender (ILTY.MI) continued to face growing requests to fund acquisitions or innovation and internalization projects.

“When you talk to business owners privately…outside Confindustria…they are confident in their ability to respond,” said Zhu, who leads Banco BPM (BAMI.MI), Italy’s third-largest bank. Sepe Castania said recently.

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

Our Standard: The Thomson Reuters Trust Principles.

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