Fashion industry in emergency: brand suppliers are suffering from winter as costs soar due to energy crisis

The global energy crisis has led to the closure of steel rolling mills and aluminum smelters across Europe. Now the shutdowns are spreading across Europe’s fashion industry, affecting thousands of factories that supply raw materials to luxury and fast-fashion brands.

Recently, some European textile manufacturers have said that because of high energy prices, public entities and other energy suppliers, fearing that they will not be able to receive their payments, are asking textile companies to obtain bank guarantees or cash advances to ensure that the companies can afford to pay their energy bills for several months. In Italy (Europe’s largest producer of textiles), many manufacturers say they were previously able to use energy purchase agreements to hedge against short-term price fluctuations, but they are no longer able to enter into such agreements.
Italy and a number of other southern European countries have called for the EU to cap the wholesale price of natural gas in all member states, a measure opposed by Germany and the Netherlands. The European Commission, the EU’s executive body, unveiled proposals on Tuesday seeking the power to cap gas prices on the EU’s main exchanges in case of emergency.
Today, the crisis is spreading upstream and downstream along the supply chain. Not only spinning and weaving mills, which consume huge amounts of electricity to spin bales of wool into yarn, but also fabric dyeing plants, which now use natural gas dyeing vats and industrial dryers, are beginning to suffer. Fabric manufacturers cannot easily pass these increased costs on to buyers. Many companies are obligated to deliver at prices agreed upon months ago. Moreover, higher prices may prompt many fashion houses and retailers to move their operations outside Europe, where energy prices are lower. The future of 1.3 million textile manufacturing jobs across the EU is uncertain.
Alberto Paccanelli runs a textile manufacturing company in northern Italy. He was surprised to find that his gas bill in July soared to 660,000 euros ($650,000) from 90,000 euros a year earlier, Paccanelli said. “What’s happening now is that this industry is at risk of going out of business all over Europe.” Textile industry suppliers said some brands have moved production to other countries with lower production costs, such as Turkey, rather than remaining in countries such as Italy to bear the extra costs. Russia is also continuing to supply gas and oil to Turkey. Enrico Gatti, a wool maker who supplies Zara, H&M and other brands, said he and other textile makers near the town of Prato in Tuscany, a major textile center, have seen a 50 percent drop in orders this year.
The textile industry’s problems have exposed a growing divide among European countries: some are struggling to cope with the impact of soaring gas prices on their industries, while others can’t afford the burden. Germany has announced energy relief measures amounting to nearly €300 billion, including restrictions on electricity and gas prices. France plans to spend €100 billion on crisis response measures.
Italy does not have the financial resources to take similar measures. It is saddled with a national debt equivalent to 150 percent of GDP, and incoming Prime Minister Giorgia Meloni has pledged to rein in public spending.
As of the end of September, Italy had allocated 59 billion euros, or 3.3 percent of its GDP, to protect businesses and households from the energy crisis, according to the Brussels-based Bruegel think tank. Germany has allocated 100 billion euros, or 2.8 percent of its GDP, and France has allocated 72 billion euros, or 2.9 percent of its GDP.
Jean-François Pierre Gribomont, chairman of the textile company Utexbel NV, noted that the disagreement is undermining the EU’s single market for goods. His textile factory in Belgium now pays 193 euros per 1,000 kWh of electricity, twice as much as a year ago. France, he said, has responded to the problem with a subsidy of 123 euros per 1,000 kWh, an increase of about 50 percent from a year ago. He said, “If every country can do whatever they want, why do we have a Europe?”
Michael Engelhardt, head of energy policy at Textil+Mode, a Berlin-based trade association, said German textile and fashion companies may receive more government aid than their counterparts in some other European countries, but those companies still have to compete for public funding with companies in other domestic industries. “If you ask, ‘Who has the biggest pockets?'” he said. Then, yes, Germany has always been rich.” Fabric makers fear that if European governments are forced to restrict gas supplies this winter, they will be relegated to the back of the queue because their products are perceived as less important than other energy-intensive industries such as glass and metals.
“People might say, ‘Look, it’s not like it’s the end of the world if there are no new shirts, see?'” said Dirk Vantyghem, president of Euratex, a trade organization. But he and other textile industry representatives and manufacturers point out that the fashion industry is closely linked to the production of broader-coverage technical and medical textiles, which are used in products such as air filters, wind turbine blades, artificial human joints, and automobile tires.
Russia’s steady supply of cheap natural gas has helped manufacturers across Europe prosper for decades, and even as competition from overseas has intensified, European manufacturers have not been overly affected. Europe’s share of global textile exports has declined over the past 20 years, while China’s share has quadrupled to more than 40 percent by 2020, more than double the EU’s share in 2020, according to the latest World Trade Organization data. Small and medium-sized European companies have developed close relationships with design brands and have deepened their expertise over the years to dominate the industry.
These companies import raw fibers from New Zealand and Australia, which are then spun into fine threads and fabrics using spinning and weaving techniques that consume large amounts of electricity. Moreover, the raw materials are dyed in giant vats powered by natural gas. Niche companies design and develop high-quality finishes that require skilled workers but are more profitable for the company.
Many of these companies are clustered in Italy in places such as the Lake Como silk industrial zone and the wool production center in the town of Prato, Tuscany. This cooperation allows smaller companies to realize economies of scale beyond their own size, to compete with China and Turkey on price and quality, and to win opportunities to produce fabrics for international brands.
When energy prices first began to soar a year ago, many small companies found it difficult to absorb the added energy costs. In the following year, gas prices across Europe rose nearly tenfold. However, after hitting a high in August this year, gas prices have fallen back as gas producers have also struggled to reverse the excessively high gas prices of the first part of the year.
Maurizio Sarti, a luxury wool manufacturer in Tuscany, said he had compressed his order production time to two months, but it was still not enough to keep up with the gas price hike. He said, “I’ve just set my prices and the cost of gas has doubled, and I can’t pass on the additional energy costs to my customers after I’ve set my prices.”
Vincenzo Cangioli, another high-end wool producer in Tuscany, found that he could no longer renew his long-term gas purchase agreement at any price and had to buy gas on a monthly basis. His gas bill for July was a whopping €340,000, compared with €450,000 for the whole of 2021,” he said. He says: “Looking at February and looking at July, it’s like I’m running two completely different companies, which is very scary.”
Guido Nesti has a dyeing plant in Prato, Italy, which employs 30 people. In September, he told his gas supplier that he wanted to renew a purchasing agreement for a year or more as before. Like many company owners in Italy, Nesti is accustomed to negotiating with his gas supplier during the summer months, when demand for gas energy is low and storage facilities across Europe are full of gas.
Nesti, 65, said he was incredulous when the supplier asked him to pay the equivalent of at least two months’ worth of gas bills in cash up front. With the price of gas ten times what it was a year ago, he said, the total amount of the two-month bill was at an unprecedented level. Nesti relayed the news to Fabio Reali, another dyeing plant operator in the same region, whose purchasing agreement is due to expire in December, and calculated that, based on the bills for July and August, he would have to pay about €1 million if his supplier made a similar demand. Reali calculated that, based on the July and August bills, if his suppliers made similar demands, he would have to come up with around €1 million to cover two months’ worth of gas bills. That means that for the year he would have to pay half of his annual income of €10 million to pay his energy bills, whereas in the past the cost of energy has accounted for only 10 percent of his annual income. The cost of gas, he says, has gone from being “one of the thousands of costs of doing business” that he seldom thinks about to “a monster that is eating us up”.
Reali called an emergency meeting with department heads, telling them that the next few weeks would be a make-or-break moment for the company. The cost of heating large tanks of water to dye the fabrics was prohibitive, and the company could only afford to lose money for two to three months before it had to close down (if things didn’t improve).
Since the start of the war between Russia and Ukraine, Reali has been gradually raising prices. This summer, Moscow decided first to restrict the flow of gas from the Nord Stream pipeline and then to shut down this important artery of Europe’s natural gas supply. As a result, the price of natural gas rose to more than 10 times the price Reali paid a year ago.

As a result of the price increase, Reali’s energy costs were too high to pass on through his supply chain. And the usual buyer of his dyed fabric is none other than wool manufacturer Gatti, who has years of experience negotiating with big brands and responding to outbreaks and other crises. Gatti says he recently sent Zara fabric for a sample jacket and other garments, and was ready to produce about 200,000 yards of fabric for the brand. But when he asked Zara to cover his and Reali’s additional energy costs, he says, Zara changed its mind.
Gatti saved some money by running the looms on nights when electricity prices were lower. But Reali’s dyeing plant can’t make the same flexible adjustments because of the amount of natural gas it takes to shut down and heat up the huge dye vats, and Gatti says it would take as little as three days for shipments to be delayed and for Zara to incur fines if it used this cost-saving method of production. The big brands don’t want to hear that, he says: “They just want to maintain their profits.”

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