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Inside the Denim Industry’s Energy Agony

The world is experiencing “the first truly global energy crisis,” Fatih Birol, executive director of the International Energy Agency (IEA), said during Singapore International Energy Week in October 2022. He added that things will probably only worsen as demand for liquid natural gas is not expected to meet available supply in the coming months and that the world’s oil supply will also be reduced due to OPEC’s recent decision to cut oil exports by 2 million barrels per day.

That’s bad news for almost everyone but especially grim for denim mills that have literally been put through the mill of late due to rising gas, oil and electricity prices and shortages brought on by this crunch. The struggle to weather this storm of financial burden has been an especially challenging and oftentimes unprecedented one that has pruned production capacity, pushed up prices for raw materials (and ultimately for the fabrics), slashed staff ranks and operations, and unleashed cries for help to regional governments, most of which have fallen on deaf ears. 

The situation has been particularly painful in Europe where sanctions against Russian oil and gas exports over Russia’s invasion of Ukraine among other factors caused bills to skyrocket to never-before-seen figures in 2022. In late August gas prices hit a record-setting 321 euros, roughly equivalent in dollars, per megawatt-hour (MWh), a massive jump from the 27 euros they were the August before. 

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That escalation prompted Euratex, the European Apparel and Textile Confederation that represents the interests of the European textile and clothing industry at the level of the EU institutions, to issue an emergency statement on Sept. 16 that read in part: “An ambitious and meaningful European price cap on the wholesale price of natural gas is absolutely necessary. Europe is running out of time to save its own industry. It is now time to act swiftly, decisively in unity and solidarity at European level. We understand a very high price cap has been so far discussed among Ministries and that is not reassuring for companies across Europe: if any cap is, as expected, above 100/MWh, these businesses will collapse.”

“Given the dire international competition in which the E.U. textiles industry operates, it is not possible to just pass on the increased costs to consumers. Yet, with these sky-high prices, our companies cannot afford to absorb those costs,” the statement continued. “The E.U. textiles companies are mainly SMEs [small and mid-sized enterprises] that do not have the financial structure to absorb such a shock. In contrast with such reality in Europe, the wholesale price of gas in the U.S. and China is 10 euros/MWh, whereas in Turkey the price is 25 euros/MWh. If the EU does not act, our international competitors will easily replace us in the market, resulting in the deindustrialization of Europe and a worsened reliance on foreign imports of essential products.”

Euratex also noted that several textile mills, especially dyeing and finishing ones, use boilers and dryers that operate on gas only. “There is no alternative technology,” it said.

This gigantic gas-price leap rubbed serious salt into the extant financial wounds of Alberto Candiani, owner of the 84-year-old Candiani mill in Lombardy, Italy, which started getting socked with increased energy bills at the start of 2022, a topic he passionately spoke about at Bluezone in August. He revealed that in the past the company paid about 7 million euros a year for gas and electricity but by the end of 2022 the yearly fee will reach between 25 million to 30 million euros. The company’s monthly energy bill used to be about 700,000 euros but in 2022 it has been amounting to 4 million euros per month, he said. 

Although things are showing slight signs of improvement since August, Candiani said in November that the problem very much remains. “In the past 20 years energy and gas bills have never exceeded all bills, including water. They have never exceeded 10 percent of our turnover. Never,” he said. “This year we’re talking 36 percent [of turnover]. And mostly because of the energy costs and natural gas escalated to a point that I couldn’t even expect. In the first quarter of 2022 it kind of doubled and then second quarter tripled, and July and August were just out of control.”

Despite increasing its efficiency by replacing its boilers prior to the crisis which allowed it to sell its “spare” emission units as prescribed by the Kyoto Protocol for 3 million euros, the mill was still forced to raise prices for its wares three different times in 2022, which amounted to a 30 percent hike in the end. “We went from 5.25 euros per meter to 7 euros per meter. And this is unprecedented,” he continued, adding that he was grateful that roughly 80 percent of his customers were willing to accept the increase.

He also said that Candiani has received no government assistance other than a tax write-off it will be eligible to take for the year but that it will still have to pay its bills until then.

To further reduce energy use, the mill switched from a six-day workweek to a four-day one in July and has implemented solar power, though that will only cover 10 percent of its energy needs. Candiani was also forced to scrap a plan to hire 100 new workers in 2022 after having “a beautiful year” post-lockdown in 2021. Instead, he could only take on about 55. “As an entrepreneur that’s failure, right?” he said. “It feels very bad. It’s just frustrating.”

Energy-fueled frustrations have also run high with denim makers in other parts of the world from Asia to North America.

Pakistan, home to such mills as Naveena, Siddiqsons, Artistic Denim Mills and Crescent Bahuman Limited, has had a longstanding energy crisis that forced businesses to shutter for more than two weeks in December 2021 because they did have enough power to continue operations. And seven months later parts of the nation were experiencing 10 to 18 hours of load shedding, or enforced blackouts, that adversely affected production.

Since then, the problem has only worsened after September’s so-called “monsoon on steroids” hit the country, killing 1,400, leaving thousands more homeless, wreaking $30 billion in economic havoc and destroying 45 percent of its cotton crop, according to Ahsan Iqbal, minister of planning and development of Pakistan. 

Imran Taveer, a denim researcher at Crescent Bahuman, said his company has not been immune to the challenges in Pakistan. “One of the most pressing issues has been the rising energy costs and we have experienced the same as well. Our country is already energy deprived so the demand is more than the actual supply which is one of the main factors for the continuous rising prices. These price increases have been quite extensive and regular and a lot of small industry has not been able to cope which has resulted in their closure,” he said. 

The mill is managing by implementing alternative energies. “We are using different sources for making electricity and not [depending] on only one source has helped us mitigate the situation in a much better way,” he said. As part of this mechanism, Crescent Bahuman just launched a solar park that synchronizes 8.0 megawatts with its power generation.

Mexico-based Global Denim, which has been forced to raise prices due to inflation in energy, transportation and raw materials costs as well, is another mill using modern methods to cut its reliance on natural gas, which creative director Annat Finkler said has risen in price by as much as 100 percent in Mexico. 

“We have been renewing and making our machinery more energy efficient to relieve these costs as much as we can,” she said. “We create sustainable energy resources; we have our own hydroelectrical power plant and our own cogeneration plant, which not only increases energy efficiency and supports renewable energy but also has lower emissions and reduces energy costs,” she said about the company’s state-of-the-art facility in Puebla.

Durable like the fabric they produce, these and other energy-embattled denim mills have not given up and remain cautiously optimistic, or at least semi-optimistic, about the future.

“I believe with the increased domestic consumptions, energy inflation especially in this part of the world is going to stay for a longer time until and unless there are some other better initiatives taken at government levels,” Taveer said. “We are seeing downfall in the industry and one of the attributes is rising manufacturing costs that include energy costs too.”

Candiani, the mill owner, said lower European gas prices, which fell to 108.5 euros as of Oct. 28, and strong U.S. dollar have combined to ameliorate matters somewhat, especially since U.S. clients make up about 40 percent of his company’s total business. “Now things are normalizing a bit, but we do not see the benefits yet. Natural gas is still very expensive,” he said.

He then added, “But what doesn’t kill you makes you stronger, right?”

This article appears in the Winter 2022 issue of Rivet. Click here to read more.