November 2021 Volume 3

OPERATIONS & MANAGEMENT

What Runaway Natural Gas and Electricity Prices Mean for the Forging Industry – And What Your Company Can Do About It By Jane Seagraves

Why Are Energy Prices Rocketing Up? So why have prices shot up so dramatically?

According to a new report by Market Research Future, the global metal forging market is projected to grow at an annual CAGR of over 6%, from $84.7 billion in 2020 to $130.5 billion in 2028. But there is a hurdle on this path to prosperity that the forging industry may not have anticipated, and, unless dealt with strategically and decisively, could hamper growth and eat into profitability: Natural gas prices have risen precipitously this year – well over 100% – and show no signs of letting up. Whether using natural gas for heat treaters, or electricity for induction heaters, the forging industry is extremely energy-intensive, making it susceptible to increases in energy commodity prices. Additionally, natural gas prices are now tightly correlated to the price of electricity, so there’s no dodging the bullet of skyrocketing natural gas prices. Simply put, and the reason I am writing today, is that if you haven’t hedged your energy spend out through 2022-2023 and need to go back into the market to procure your energy supply, you could be in for a major surprise. Here’s what you need to know and how to limit the impact of this energy-price tsunami.

At Transparent Energy, we have been forecasting this surge in natural gas and electricity prices for over a year, as have other major players like Morgan Stanley and Raymond James. In fact, we have been warning our clients that the historic lows of 2020 wouldn’t last and urged all parties to “buy now” and “go long” for the last two years. I bring this up, because that’s one of the great benefits of partnering with an energy procurement specialist – a firm steeped in energy markets intelligence and transactional expertise – as the Forging Industry Association has recently done with Transparent Energy. Energy markets are complex and volatile, so there is a long-term benefit to your business to have a partner there every step of the way, looking ahead while watching your back. But I digress. The reason natural gas prices have surged is because of a perfect storm of market factors which had been brewing has finally been

unleashed over the last few months. Unfortunately for energy buyers, this isn’t a temporary blip, but likely the new normal for years to come. In fact, some industry watchers see natural gas prices doubling fromwhat they are today, which is already more than double what they were last year. Think about the impact of any of your other major operational costs surging like this, then read on. Natural gas prices, and electricity prices with them, are spiking and are forecasted to continue to rise, for the following reasons: 1. The market is under-supplied through the winter and well into 2022. 2. The current natural gas storage trajectory is on track for the second-lowest end of injection-season of the past decade. 3. Gas-to-coal switching, which is used to put a curb on natural gas price run-ups, is tapped out due to coal plant retirements.

FIA MAGAZINE | NOVEMBER 2021 46