over 2 years ago • 1 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.
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.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.