Jean-Baptiste Fayet, CEO of Terreal Franc, talks about the impact of rising gas prices on the activities of the group of 3,300 employees worldwide, specializing in terracotta building materials. And confirms that the context calls for an accelerated shift towards decarbonization and alternative energies.
How does the development of the gas price and the international context of the war in Ukraine affect the cost of energy for Terreal?
In terms of energy, we find ourselves in a very special context. We were used to prices around €15-20 per MWh, with very limited fluctuations, around €1 per day. The increase in gas prices, followed by electricity, started in Q2 2021 and reached €150; The outbreak of war in Ukraine prompted further gains, peaking at €340 in March. Today we are fluctuating between €100 and €150, but with huge volatility, prices can fluctuate around €10 or €20 over a day. With terracotta building materials, energy accounts for 20% of the production costs. Given prices multiplied by 10, the impact is obviously significant and the situation became very complicated on certain routes in March. For this reason, we had to temporarily stop three of our 25 lines, which accounted for 10% of our production, including the Roman tile of Castelnaudary.
What levers does Terreal have to deal with this new situation?
We always try to encourage activity, but when we find ourselves in an uneconomical pricing configuration, we are forced to take action. Today we have resumed activities in all our locations and decided an additional price increase in order to be able to supply our customers: the hardware store has returned to its level quite quickly after the Covid; In 2021 we were even faced with a demand boom of 15%. But we had decided not to raise our prices; These increases have therefore arrived in 2022. Our customers have noticed these increases in materials such as wood and coatings since last year: they have started to adjust their prices to their end customers. At renovation sites where tile supply accounts for almost 30% of the estimate, roofers have the opportunity to moderate these increases in a final estimate; but it will certainly be more complicated on large plots of land, collective buildings that are spread over longer periods of time.
This context, the uncertainties in price and supply, are they likely to prompt Terreal to massively consider its energy “mix” and use of natural gas?
It’s more than a reflection. At the Chagny site, we have been using renewable gas (biomethane) from the treatment of household waste since 2015: it now accounts for 30% of our gas consumption. But we also have concrete projects that are being launched on the 25 lines. We are in the investment phase, particularly at the Lasbordes and Castelnaudary sites, where our research center is an important link, to be completed in the next two to three years. These are large multi-million euro investments that require industrial scale sites to accommodate and this applies to all of our production lines.
The decarbonization of production processes is an objective of Terreal and more generally of the Bricks and Tiles Federation, which in the coming days will publish its roadmap on this topic with several paths: optimization of current processes, bets on biomethane, biomass, photovoltaic, hydrogen, CO2 Deposition or even the electrification of the drying activity. For Terreal, we have taken a first step towards 2030 by reducing our natural gas consumption by 35% and then by 80% by 2050. What we do know is that energy costs will remain at high levels for the months and years to come. If we add to that the context of decarbonization and a government that eases the approval and validation processes for new production methods, it will speed things up.