Idled plants fuel German angst about de-industrialisation

The familiar plume of smoke no longer billows from one of the two chimneys at ArcelorMittal's massive steelworks in Hamburg's harbour.

Soaring energy prices have forced operators to partially idle the plant, adding to fears that Germany's industrial companies, the backbone of Europe's biggest economy, are facing an existential threat.

Germany is already bracing for a recession as the energy crisis triggered by Russia's war in Ukraine takes its toll, with the government on Wednesday forecasting a contraction of 0.4 per cent in 2023.

But some economists say the long-term impact could run far deeper and see entire manufacturing sectors trim production or relocate to countries where running costs are lower, fundamentally reshaping Germany's industrial landscape.

In Hamburg, the 530 workers at the ArcelorMittal steelworks have been placed on reduced hours since early October.

"Gas plays a crucial role in the (iron ore) reduction process" carried out at the plant, said Uwe Braun, CEO of ArcelorMittal Hamburg.

But the energy bill has risen "seven-fold" since Russia's February invasion of Ukraine, he told AFP at the site, where activity was subdued and helmet-clad workers were spread out around the imposing 1970s steelworks.

The steep price increase made it unaffordable to continue business as usual at the site, which on average consumes two terawatt-hours of gas and one terawatt-hour of electricity per year -- enough to power a medium-sized city.

Similar steps to curb production have been taken at other European sites operated by ArcelorMittal, the continent's biggest steelmaker.

In a September statement announcing the cost-saving measures, the company blamed the "exorbitant" rise in energy prices and weaker demand as the global economic outlook darkens.

'Broken'

Germany in recent decades managed to avoid the waves of de-industrialisation that hit other European countries.

Industrial production remains a pillar of the country's economy and accounts for around 22 percent of gross domestic product (GDP), compared with around 13 percent in neighbouring France.

"Germany's business model in a nutshell is buying cheap energy from Russia, raw materials and intermediate products... make some outstanding cars and machines... and export them" to the United States and China, said LBBW bank economist Jens-Oliver Niklasch.