CTDA Article from Italian Newpaper on Clay supply Shortage due to Ukraine Conflict
Below is an article from an Italian newspaper that describes the challenges some of our industry partners in Italy are dealing with.
25% of the clay used by the companies in the sector came from Ukraine. Now there is no kaolin, which is needed to produce very white and large format tiles. Alternative suppliers are sought, but the quality is less valuable. Meanwhile, the increase in energy prices forced about thirty companies (out of over 200) to block their plants for a few days last month. The margins have narrowed and the lists are now only valid for a few days
by Michele Zaccardi | APRIL 19, 2022
The Italian ceramics sector is experiencing a paradox: companies have orders until next year but are struggling to satisfy them. In short, it is an upside-down world, in which companies risk closing because they are unable to produce. Between energy price increases, the explosion of transport costs and supplies that worked in fits and starts, the sector was already under pressure in recent months. Now, with the war, these problems have been joined by the blocking of shipments from Ukraine, where 25% of the clay used by ceramic companies comes from. Until a few months ago, 35,000-tonne ships departed from the port of Mariupol and, after crossing the Azov and Black Seas, landed in Ravenna. From the ports of call, trucks with clays extracted in the Donbass supplied the ceramic companies of Sassuolo, Faenza, Imola and Scandiano, the largest in Italy. Together with mechanics, in fact, the sector is the pride of the area.
According to still provisional data for 2021, out of a national production of 6.1 billion euros, the Emilia district is worth 5 billion and exports 85% of its turnover. “The demand is very high but our companies have difficulty in delivering” explains the president of Confindustria Ceramica, Giovanni Savorani. To worry entrepreneurs are above all the margins, very risky due to the energy price increases. Some of them prefer to lose rather than lose market share. “We have made the choice to protect customers who are our main assets” continues Savorani, “without paying too much attention to the income statement. After all, the situation is so serious that we believe we should do so to protect our factories, our workers and for the 50 years it took us to conquer the markets of 160 countries around the world ”. Also because the related industries have 20,000 employees and any closures would have a very significant impact on the social fabric.
To aggravate an already critical situation on the energy front, then came the war that caused the blocking of Italian imports from Ukraine. “Kaolin is beginning to be lacking in particular, a type of clay necessary to produce very white and large-format tiles”, underlines Ermes Ferrari, head of the studies office of Cna in Modena. For the time being, however, the industry has held up quite well, seeking new suppliers and increasing deliveries from old ones. “We are trying to replace the clays that came from Donbass, and which covered 25-30% of our compositions, with German and French ones”, underlines Savorani, who is also the owner of Gigacer, an important ceramic company from Faenza.
Furthermore, to meet the needs, the extractions from some quarries in Sardinia have been increased. In addition to the higher cost of these clays, however, there is the problem of quality: it is in fact less valuable than the Ukrainian one. “They are darker raw materials” explains the manager, “those from Donbass, on the other hand, are very white and very plastic. To replace them we are turning to India, Brazil and Venezuela. Ships from Turkey are also arriving in Ravenna “. With a probable increase in transport costs due to the greater distance. “Let’s not mind it”, continues Savorani, “the goal is to keep the bar straight to serve customers: it would be a disaster to leave the market now”.
The luck is that the companies in the sector had stocks, on average, for a couple of months, and this allowed them to shop around. In fact, as soon as the conflict broke out, many companies began to diversify their supplies, while some entrepreneurs had reduced their purchases of Ukrainian clay as early as 2014, when Russia annexed Crimea and in the Donbass the fuse of pro-Russian separatism was lit. “Even if the war had a huge influence, I am quite confident that the problem can be solved” continues Savorani, “so far we have not had to suspend production due to the lack of clay”.
As far as gas is concerned, however, the situation is different. About thirty companies (out of over 200) were forced to shut down their plants for a few days last month, when methane jumped to 3 euros per cubic meter, compared to twenty cents a year earlier. The price then dropped to € 1.20 but such abrupt fluctuations are deleterious for an energy-intensive sector such as that of ceramics. “Energy is a primary factor for our production and the price increases affect above all those who make low-end products”, explains Michele Iacaruso, owner of Laek Sistemi, a company that deals with machines for ceramics. “To make one square meter of tiles, three cubic meters of gas are needed” continues the entrepreneur, “at the beginning of 2021, with methane at € 0.20, the cost was sixty cents: today, however, it has also reached 3 or 4 euros “.
Furthermore, few companies in the sector have protected themselves with long-term contracts at fixed prices. “There have also been unilateral terminations: some energy suppliers have preferred to pay penalties in order to get out of contracts”, underlines Savorani. “Our bill has increased from 60-70 thousand euros per month to 240 thousand and in March it will be even higher because we have produced more,” adds the entrepreneur and president of Confindustria Ceramica. According to Ferrari, head of economic policy of the Cna of Modena, the main problem is uncertainty: “You can’t plan: companies work with very low margins and with price lists whose validity is a maximum of one week”. “We are at a paradox” concludes the economist, “there are companies with orders up to the summer of 2023 but which cannot plan and this risks blocking investments”.
But the European trading system (ETS), which sets a ceiling on the amount of total CO2 that can be emitted in the EU, has also caused gas prices to rise for the ceramics sector. it requires those who do so to purchase the related rights on a virtual market. “The Ets system was giving us a lot of trouble to grow. The emissions bar has been lowered over the years and, not having technologies to reduce them, we have had to buy more and more quotas “, explains the president of Confindustria Ceramica, Savorani. In addition, there are numerous trading companies on the Ets market that buy certificates to resell them, helping to inflate their prices. The quotas “have a great influence on our costs”, underlines Savorani “when the law came into force in 2005, a ton of CO2 was valued at 4 euros. Now we have reached 92 euros “. Not only that, though. Within the European Union, the most backward countries from an environmental point of view enjoy softer rules. “There are our competitors in Poland to whom quotas are not applied, they are rewarded because they stop using coal to produce electricity and switch to gas”. An unequal treatment that entrepreneurs consider incomprehensible for a sector which, they explain, has invested 2.2 billion euros in the last five years and has reduced the environmental impact of its production.
On the other hand, despite a thousand difficulties, Italian ceramics are very competitive in international markets. Despite the increase in transport costs – container freight rates went from 1800 to 9 thousand euros – in 2021 exports to the United States were 17% higher than in 2019. This while the sector holds, now in a stable way, 31% of total American tile imports. Last year, sales abroad earned 5.5 billion euros on a total turnover of 6.1.