Pulled in different directions
Will the government’s recently announced energy support package for businesses help settle nerves this winter? Chair of the Cornwall Group, Mark Mitchell, is not so sure.
In September, the government announced an emergency support package for businesses to help with the cost of energy.
The headline takeaway is a cap on the wholesale price of energy –
£211 a megawatt hour for electricity and £75 a megawatt hour for gas – which is less than half the wholesale prices anticipated this winter. The changes will apply to new contracts from 1 October, and to fixed contracts taken out since 1 April.
While this announcement would have taken the sting out of the tail for many businesses, glass companies will still be facing a period of uncertainty, according to Cornwall Group Chair, Mark Mitchell.
“There is no doubt that this energy cap for businesses is good news,” Mark said. “We are an energy intensive business, and we have seen our energy bills rocket in recent months.
“For example, our combined energy bill was approaching £250k per month, where previously it was £60k per month. These costs have to be passed down the supply chain in the form of price increases because they simply cannot be absorbed by us or our suppliers. And it is important that our customers keep an eye on input costs from all suppliers because they don’t want to be left holding the can.”
Despite this intervention, the outlook for the glass industry is still one of uncertainty, according to Mark, because the energy cap doesn’t currently affect the energy surcharge imposed by the glass manufacturers – some of whom are not based in the UK and will not be subject to the British government’s energy price cap themselves.
Mark explains that the energy surcharges were imposed independently by each glass manufacturer, and calculated using a different set of criteria. They are announced at different stages of the month, sometimes only giving customers just 48 hours to digest the details and amend their pricing schedules accordingly.
There is also no sign of the energy surcharges being lifted, despite the extra financial support on offer.
“The government price cap for businesses was supposed to calm an uncertain situation, but the only certainty we now have is uncertainty,” Mark says. “While we can manage our own energy prices a little more confidently, we are still at the mercy of the glass manufacturers who impose often unpredictable surcharges with little notice.
“And those surcharges are passed on wholesale – we receive, and we bill out – so there is little or no room to make any margin, which effectively means we are squeezed further. It is very unsettling.”
Mark’s candid observations come from a position of strength, and he appreciates that Cornwall Group’s status as a reliable key supplier gives stability to their customers.
“We are in the fortunate position of being a financially strong business that can weather economic storms while investing for future growth,” Mark says.
“Other glass companies don’t always have this financial safety net, and have often borrowed quite heavily to fund investment into machinery. With inflation nudging 9%, which is expected to push interest rates even higher, this will have an impact on the cost of borrowing. This will not only affect businesses’ cash flow, but it could stifle demand as mortgage rates increase.
“Fortunately, the Cornwall Group has customers across three divisions – merchanting, manufacturing and trade counter – with separate boards managing separate sets of demands. This means we have a very targeted approach to the individual needs of the industry and are not adversely affected by challenges in one area.”
This sense of being pulled in different directions – with government financial help being redirected to cover increased costs that appear elsewhere – is leaving many glass companies uncertain about their future direction.
“While Western Europe is suggesting it is well placed for gas supplies this winter, that remains to be seen, and a harsh weather winter will naturally put a huge strain on supplies,” Mark observes. “That, coupled with recent apparent sabotage to main gas links into Europe, will inevitably keep wholesale prices high.
“Additionally, Far East demand remains high for gas, causing ongoing spikes in pricing impacting on global prices.”
Mark continues: “We are all feeling a bit battle weary, and these sorts of pressures may be coming at a time when business owners are looking at the need to invest in order to grow. We are certainly having conversations with people where we can take that heavy lifting off their hands because we already have those resources in place.
“So, while the support with energy cost is welcomed, it will be a few months yet before we see what the full impact will be,” Mark concludes. “Meanwhile, we’ll be waiting to see what happens with the energy surcharge, because greater clarity on that will benefit us all.”