Ineos shuts down production – now watch the costs travel downstream

              

 

This is an abbreviated article by Liz Barclay – read the full article at Business111.com/news

Sir Jim Ratcliffe is mothballing three Ineos chemical plants in Hull and putting the blame squarely on “ridiculously high” gas prices. Ineos says European gas now costs 12 times as much as in the US and that its plants can no longer compete globally. If one of Britain’s biggest industrial companies can’t make the numbers work, small and micro businesses with far thinner margins and almost no hedging power have reason to worry.

Gas and electricity prices remain far above historic norms and industry leaders are warning about Britain’s competitiveness. Every manufacturer, retailer, tradesperson and microbusiness relying on chemicals, plastics, packaging or other energy-intensive inputs is exposed to what happens next.

HIGHER PRICES DOWN THE CHAIN

Ineos produces chemicals used in everything from pharmaceuticals and clothing to cosmetics, detergents and construction materials. Mothballing domestic production potentially means greater dependence on imports and more exposure to international prices and exchange rates.

For micro manufacturers, makers, food producers and trades, higher costs further up the supply chain can eventually land on their own invoices.

The same problem applies to energy itself. Bakeries, cafés, workshops, salons, laundries and small manufacturers can’t simply stop using electricity or gas when prices rise, while many have little purchasing power when negotiating contracts.

FEWER SUPPLIERS, MORE RISK

The three Hull plants are Europe’s last remaining world-scale acetyls units. Two have already stopped production and the third is due to follow.

Ineos says the operations support almost 4,000 jobs across the wider Humberside supply chain. That includes suppliers, contractors, transport businesses and other companies dependent on the industrial economy around the sites.

For small businesses, fewer domestic sources of important industrial materials can also mean greater reliance on imports and potentially more volatile supply chains.

IF BIG INDUSTRY CAN’T COMPETE

Ratcliffe’s wider argument is about competitiveness.

If British industrial companies face substantially higher energy costs than competitors in the US and China, they either have to become more efficient, charge more, absorb lower margins or ultimately move or stop production.

Small manufacturers face exactly the same choices, but usually with far less financial room to manoeuvre.

Higher input costs make UK-made goods harder to price competitively against imports. Margins get squeezed and investment becomes harder to justify.

WHAT CAN SMALL FIRMS DO?

Start by reviewing your supply chain. Identify which important products depend on chemicals, plastics or other energy-intensive materials and whether alternative suppliers are available.

Where suppliers offer sensible fixed-term prices, consider whether greater certainty is worth paying for. Critical stock buffers may also help where even a short supply interruption could stop production, although tying precious cash up in unnecessary inventory creates problems of its own.

Pricing needs reviewing too. If input costs have permanently increased, absorbing them indefinitely isn’t a strategy. Minimum orders, delivery charges or selective price increases may sometimes be better than increasing every price.

Above all, protect cashflow. Higher bills combined with unpredictable demand can turn a profitable small business into one struggling for cash surprisingly quickly.

THE WARNING FROM HULL

When one of Britain’s biggest industrial companies says energy prices make production uncompetitive, what happens in Hull doesn’t necessarily stay in Hull.

The impact can spread through suppliers, contractors, transport companies and the businesses buying the materials those plants produce.

Small businesses can’t control international gas markets. They can review suppliers, reduce unnecessary energy use, adjust pricing and strengthen cashflow.

But there’s a bigger question for government too.

If some of Britain’s most efficient industrial plants cannot compete with overseas production because of the energy-price gap, the consequences don’t end at the factory gate.

They travel all the way down the supply chain to Britain’s smallest businesses.

This is an abbreviated article by Liz Barclay – read the full article at Business111.com/news

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