A gas shortage could crunch beer bottles too | Mint

A gas shortage could crunch beer bottles too

Europe’s glass industry relies heavily on gas, which is used to heat furnaces to 1,400 degrees Celsius to melt shards and other ingredients (Photo: AFP)
Europe’s glass industry relies heavily on gas, which is used to heat furnaces to 1,400 degrees Celsius to melt shards and other ingredients (Photo: AFP)

Summary

Glass manufacturers want an exemption if Europe needs to ration gas this winter. Without one, beer and liquor companies will find it even harder and costlier to get bottles.

Ever since bars and restaurants reopened after pandemic lockdowns, Europe’s glass furnaces have struggled to keep up with demand for bottles. Now tensions with the Kremlin could add to the crunch.

European benchmark gas futures hit a record high Monday following news that the Nord Stream pipeline between Russia and Germany will close for three days of maintenance. Investors are increasingly concerned that Moscow will find pretexts to throttle supplies of the fuel to Europe, forcing governments in the region to introduce rationing.

Drinks companies are among those affected. They have backup plans for their own industrial processes: Beer companies, which use gas to heat water for the brewing process, can temporarily switch to oil. Carlsberg will be able to run its roughly 40 European breweries on oil from early November.

Getting enough bottles could be tricker. Europe’s glass industry relies heavily on gas, which is used to heat furnaces to 1,400 degrees Celsius to melt shards and other ingredients. Most glass plants can’t be shut down as furnaces risk being destroyed when molten glass solidifies inside them—the reason they run continuously for their 10 to 15-year lifespan. They can be put on “hot hold," a state that keeps the material inside liquid, but this still needs up to 75% of normal gas consumption with no glass output.

Even a moderate reduction isn’t ideal. A 15% cut in gas use, the level that European Union member states need to come up with, could lead to a drop in glass production of more than double that rate, according to one industry professional.

Glass manufacturers are lobbying for priority access to gas and warning governments that powering down European furnaces and importing bottles would destroy the region’s industrial assets. But other sectors also are asking for protections. Companies in the chemical and pharmaceutical industries point out that they make inputs for fertilizers and drugs that are vital for the region’s food and medicine security.

There is already a bottle shortage in Europe. Alcohol companies have struggled to get enough supply since the region’s night venues reopened. As businesses switch from plastic containers to glass to meet their sustainable packaging goals, competition for bottles is intensifying. In 2021, glass production increased by 5% as furnaces tried to keep up with demand, according to the European Container Glass Federation, more than double the industry’s average growth rate over the past decade.

The shortage will make it hard for alcohol companies to build their bottle inventories ahead of winter. The biggest distillers and brewers, such as Diageo and Heineken, will probably get priority access as they are such important customers, but they can expect to pay more. The cost of a bottle for a decent Scotch has increased from 30 cents a year ago to around 45 cents today, according to one major alcohol company. As glass packaging makes up a quarter of liquor companies’ costs of goods sold, this will need to be passed on to increasingly pinched consumers to protect profit margins.

Brewers and distillers aren’t at the very center of the European gas crunch, but they could illustrate how the crisis is filtering through to the region’s companies in ways that investors might not immediately anticipate.

 

Catch all the Corporate news and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
more

MINT SPECIALS

Switch to the Mint app for fast and personalized news - Get App