Energy took 1.8 points off a manufacturer's margin this summer

This quarter in margin points

The typical manufacturer in this post has 100 million euros of revenue and a 10% cash profit margin. If September prices last for a year and none of the change reaches its customers, the margin falls to 8.4%.

Energy accounts for the loss. Plastics and board together add back 0.2 points.

Move 1 · Energy: gas and power, −1.8 points

−1.8 points

1.8 million euros a year

European gas averaged 75 euros a megawatt hour in September, up from 45 euros in June. German power followed gas: the day-ahead price averaged 145 euros a megawatt hour in September, against 110 euros in June.

Carbon did little. EU emission allowances averaged 82 euros a tonne in August and traded at 85 euros on 8 September, so the rise in power came from gas.

A plant that spends 5% of revenue on energy, half on gas and half on power, pays 1.8 million euros more a year at September prices. That assumes it buys at monthly market prices. A plant with a fixed-price contract for 2026 feels nothing yet, and meets the full rise when the contract renews.

What to do. Contracts that renew on 1 January will price off the winter market, where the October gas contract traded at 83 euros on 14 September. Before customer prices reset for 2027, tie an energy surcharge to a published gas or power index, so the next rise passes through within a quarter.

Move 2 · Plastics: polymer prices ease, +0.5 points

+0.5 points

470,000 euros a year

Euro area producer prices for plastics in primary forms fell 6% between June and August, after rising 22% from February to June. The fall returned about a third of the spring rise. The September ethylene contract, the main input for polyethylene, settled at 1,475 euros a tonne, 12.50 euros below August, so September brought no rebound.

A manufacturer that spends 8% of revenue on plastic inputs saves 470,000 euros a year at August prices. Prices are still 15% above February.

What to do. Where customer prices follow a published resin index, the saving passes back to customers within one or two months, so the gain stays only on fixed-price business. Polymers are made from oil and gas, and gas rose 68% this quarter, so check whether resin contracts for 2027 follow a published ethylene or polymer index before agreeing volumes.

Move 3 · Packaging board: recycled containerboard up again, −0.3 points

−0.3 points

260,000 euros a year

Recycled containerboard, the paper that corrugated boxes are made from, rose 60 euros a tonne in September in Germany, France, Poland and Spain. In Italy it rose 40 euros, with a second step of 20 to 40 euros expected in October. Mills cited higher input costs and tight supply. Recycled board was about 470 euros a tonne in Poland in June, so the step is about 13%. Euro area producer prices for paper and paperboard changed little from June to August, which makes September the first step since the spring.

Board is about half the cost of a box. A manufacturer that spends 4% of revenue on paper and board packaging pays about 6% more for boxes, or 260,000 euros a year, once its box supplier passes the rise on.

What to do. Box suppliers usually pass board rises on one to three months later, so the cost arrives in the fourth quarter. Check each box supplier's increase against the published board price for its country and month, and resist any step larger than the board move times board's share of the box.

What else moved, and why it is left out

The euro was 1.15 dollars in both June and September. Aluminium on the London Metal Exchange fell 5% in dollars between June and September, while euro area steel producer prices rose 2% between June and August. For a manufacturer that spends 10% of revenue on metals, the two nearly cancel: less than 0.1 points. Export orders across euro area factories grew for a second month in September, and the manufacturing purchasing managers' index rose to 52.9, its highest since May 2022. The index shows direction, so we do not price it.

Arithmetic

Gas: 75.3 ÷ 44.9 = +68%. 2.5 million euros × 80% × 68% = 1.35 million euros.

Power: 144.8 ÷ 109.5 = +32%. 2.5 million euros × 60% × 32% = 0.48 million euros.

Energy total: 1.84 million euros = 1.8 points of 100 million euros.

Plastics: 113.9 ÷ 121.0 = −6%. 8 million euros × 6% = 0.47 million euros saved = +0.5 points.

Board: 60 ÷ 470 = +13%. Box cost +13% × 50% = +6%. 4 million euros × 6% = 0.26 million euros = −0.3 points.

Net: −1.84 + 0.47 − 0.26 = −1.63 million euros. Margin 10.0% to 8.4%.

Metals (left out): steel +2% × 6 million euros = +0.10 million euros; aluminium −5% × 4 million euros = −0.19 million euros; net 0.09 million euros saved, under 0.1 points.

Gas conversion: September, 25.42 dollars a million British thermal units ÷ 1.1513 dollars a euro × 3.412 = 75.3 euros a megawatt hour. June, 15.17 ÷ 1.152 × 3.412 = 44.9.

The typical manufacturer

Every post prices its moves for the same company, so posts add up. Points are before customer prices reset, at a full year of the latest prices. Pragmon AI runs the same sums on a company's own figures.