Analysis: Energy crisis tests resilience of Italian businesses

  • Response to energy crisis crucial to economic outlook
  • Bankers say companies are more resilient than credit given
  • Italy has fared better than expected so far this year

MILAN, Oct 21 (Reuters) – Italian media had only just begun to talk about the threat of winter gas rationing when Marco Checchi took action to ensure bottle cap maker Pelliconi would continue to supply customers including Coca-Cola, Heineken and Guinness .

Pelliconi, which produces 35 billion bottle caps a year primarily in Italy but also in Egypt and China, has increased production of energy-intensive semi-finished products, invested in solar panels and launched a prototype of a new digital printer for sheet metal that did not require gas ovens.

“If you run a business and you keep hearing the news that the gas supply is at risk, you have to do something. It’s not like you can start screaming and stamping your foot when they actually stop the flow for two hours a day,” Checchi told Reuters.

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Like other Italian companies grappling with the energy crisis sparked by the Ukraine war, Pelliconi has more than tripled its electricity and gas costs as a percentage of sales this year, compounding problems from higher steel prices.

In some cases, it was able to pass on almost two-thirds of the cost increases to its customers and is planning further price increases next year.

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Higher prices contributed to a calendar-adjusted 16.2% increase in manufacturing sales reported in July, but volumes were also up 1.7%. Overall, this corresponds to an annual decrease of 0.8% in Germany.

DARKNESS THE IMAGE

Italy has traditionally been the laggard among the eurozone’s largest economies and has seen a stronger post-pandemic recovery in post-pandemic industrial production than France and Germany, said Intesa Sanpaolo’s economist Paolo Mameli.

After better-than-expected growth in the first half of the year, the situation has deteriorated rapidly and the government now expects the Italian economy to have contracted in the third quarter and the contraction will continue until mid-2023.

Investors are struggling to gauge the depth of the slump that awaits the European economy and debt-ridden Italy.

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

Goldman expects the bloc’s economy to contract by about 1% by the second quarter of next year, adding that robust industrial activity could limit the decline to 0.2%, while a worst-case scenario would see it approach 3%.

According to UniCredit CEO Andrea Orcel, the coping strategies of companies like Bologna-based Pelliconi are one element in the equation that will determine the bottom line.

“Companies are adapting, it is wrong to assume that they are not. We see it all the time when we look at our customers: companies are reorganizing their value chains, their logistics, everything,” he said at a recent union conference.

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“So far, households and businesses have proved more resilient than expected…markets are very concerned about Italy’s performance within the eurozone and are ignoring the fact that Italy continues to grow faster than either France or Germany,” he added, noting that corporate deposits up 35% from pre-pandemic levels.

UniCredit, which finances investments by companies to increase installed renewable energy capacity, said some of its customers in non-energy-intensive sectors have been able to self-generate 30-40% of their electricity needs, in some cases as much as 50% .

Most companies rush to install solar panels, but some are more ambitious. Fastener manufacturer SBE-Varvit has secured 400 gas cylinders, which will be delivered to its plant in north-east Italy by January to fill any shortages.

DO IT YOURSELF POWER

Even in a struggling industry like ceramics, which like glass and paper has been hit hard by rising energy bills, high-end tile maker Italcer expects to cover a quarter of its energy consumption once it finishes building the two cogeneration plants.

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

“We invested €10 million in building two combined heat and power plants and saved €4 million this year,” he said, adding Italcer saved another million by reducing the thickness of the tiles from 10 millimeters to 8.5 .

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“We have raised prices by 30-35%, which is due to a good market reaction. A weaker euro has certainly helped, as has government support measures.”

The government of outgoing Prime Minister Mario Draghi has earmarked €66 billion in tax breaks and subsidies so far this year to help energy-intensive businesses and poor households.

Italy’s business lobby Confindustria has warned of an “economic earthquake” and said the new government will struggle to offset the impact of energy prices on companies like Draghi, which have managed without damaging Italy’s fragile public finances.

But others are more positive.

Veteran banker Corrado Passera said the crises had caused natural selection among companies and his digital lender Illimity (ILTY.MI) continued to face growing requests to fund acquisitions or innovation and internalization projects.

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

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

Our standards: The Thomson Reuters Trust Principles.

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