Spain's cement sector closes plants as energy prices rocket

Spain's cement sector closes plants as energy prices rocket
18 March 2022

This week Spain's cement industry reacted to rising energy prices with the temporary closure of several cement plants. Cementos Portland Valderrivas, Tudela Veguin and FYM-HeidelbergCement have all taken action, calling upon the Spanish government to address the high electricity prices, which have been further aggravated by the war in Ukraine. ICR looks at the background to Spain's energy price spike and Oficemen's news on the latest market results.

Spanish cement consumption grew by 14 per cent in February, reaching, in absolute values, 1,269,455t, being the best month of February in the last five years. Moreover, consumption over the 12 months to February grew by 16 per cent, according to Oficemen, Spain's Cement Association.

In spite of the positive demand trend, the energy crisis has prompted the industry to shut down kilns across the country. "The cement industry is experiencing an energy emergency situation. Currently, almost half of the kilns in the sector have had to stop as a result of the high electricity costs derived from the war," explains the general director of Oficemen, Aniceto Zaragoza.

"Now that the European Commission has already agreed to review the system to limit the contagion effect of gas prices on electricity prices, it is time for its immediate implementation by the Government, as well as to reduce tolls and charges to electro-intensive industries. In addition, CO2 has significantly lowered its price, which should help lower electricity prices," adds the director general of Oficemen.

Oficemen further reported that the cement companies affected by the temporary stoppages have communicated that they will maintain the supply to meet the demand. The outage time will coincide with planned maintenance at some of these plants and the stoppages seem to have been timed to put pressure on ministers to sort out energy solutions for the cement industry in the coming days. Currently, cement supply is not being affected by the action and inventories remain in good shape.

A perfect storm
Energy prices across western Europe have risen steeply in recent weeks. Spain and Portugal are the countries in western Europe where the effect of a rise in the price of natural gas on electricity changes most dramatically in line with the price of electricity itself.

It is not just the cement sector that has shut down plants in Spain. The steel industry has added to the slowdown for the construction sector by Acerinox SA and ArcelorMittal SA suspending some operations this week. Heavy industry is at the forefront of the impact with the sustained surge in energy prices reinforced by Russia's invasion of Ukraine, while economies are trying to emerge from the COVID pandemic and begin the transition away from fossil fuels, with oil and coal prices going through the roof. It has become apparent that the EU must wean itself off of Russian gas dependence, which accounts for 40 per cent of its requirements, reports EURACTIV.

Moreover, the EU's current toolbox to tackle rising energy prices has not been sufficient to protect the cement sector in Spain, which has asked the European Commission for immediate reform on energy prices that is expected to be communicated next week.

Emergency measures
The electricity market price in Spain stood at a record EUR112/MWh in 2021, even though cheap renewable sources generate 45 per cent of the country’s power production. Last week, however, the price of wholesale electricity reached EUR442.54/MWh in Spain. Electricity prices are driven by marginal production available from gas power plants, whose costs have surged since last summer because of the supply shortage from Russia coupled with a lack of storage.

Ministers have proposed that the formation of wholesale electricity prices should be decoupled from the high volatility of gas prices by having an ‘emergency brake’ that would split the price-setting mechanisms of electricity markets. Spain also welcomes the European Commission decision to hold an open discussion on the high windfall profits of the energy companies. Earlier in the energy crisis, Spain introduced a new tax on windfall profits which angered electricity producers and the industry body has warned against a similar measure across the EU.

The Spanish government has warned that it may place temporary limits on power prices to prevent further industry shutdowns and to prevent workers from being furrowed. Teresa Ribera, Spain's Ecological Transition Minister, believes the European Council will give the go-ahead for limits to be imposed at the 24-25 March 2022 meeting. "If there is no European solution, we would have to consider challenging the European system," Ms Ribera said in an interview with Bloomberg. 

For Spain's cement sector there is likely to be continuing difficulties over energy pricing ahead. Cement demand is being catered for at present and the plants that have been shut are likely to re-open in seven to 10 days. Still, the transition to renewable energy is expected to accelerate with Cementos Alfa (Portland Valderrivas group) already announcing last October that it would move to 80 per cent renewable energy by 2030.

Published under Cement News