A Power Price Crisis Threatens To Hit European Stocks Where It Hurts

A Power Price Crisis Threatens To Hit European Stocks Where It Hurts
Andrew Rummer

over 2 years ago1 min

Just as profit margins at European companies finally recover from their pandemic-induced drubbing, a new crisis is brewing – this time caused by soaring electricity prices. 

As the chart above shows, the benchmark Stoxx Europe 600 Index (in blue) has an unsurprisingly close relationship with its companies’ level of profitability (in pink). 

But, having rebounded from the lows of 2020, Europe’s profit margins now face a hit from skyrocketing energy prices – a key cost for large manufacturers like automakers and chemicals producers.

Europe’s power market has been caught between climbing post-pandemic demand and unseasonably poor supply. A combination of low wind speeds, shuttered coal and nuclear plants, and weak stockpiles of natural gas are all pushing electricity prices through the roof. The chart below shows just how much they’ve climbed recently. 

European electricity prices in euros per megawatt-hour
European electricity prices in euros per megawatt-hour

Unless prices can normalize, the situation threatens to dent profits at some of Europe’s biggest companies – and undermine the Stoxx 600’s handy 17% year-to-date gain.

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