German porcelain maker faces fragile future due to Ukraine war

Managing Director Daniel Jeschonowski poses at the gas distribution station of the Kahla household and hotel porcelein factory in Kahla, Germany, June 29, 2022. Kahla, a German porcelein manufactuer founded in 1844, is facing difficulties in production due to the war on Ukraine and its effects on energy prices. REUTERS/Frank Simon

FRANKFURT (Reuters) - For family-owned German porcelain maker Kahla the recent cuts in Russian natural gas supply to Germany and high energy prices due to the Ukraine war pose a looming existential threat.

"As a manufacturer dependent on gas for our production... we are very concerned," said Kahla managing director Daniel Jeschonowski.

"We are not faced with a situation where we have to shut down tomorrow but this is not tenable over a longer period of time and you just can't pass [the price rise] along to customers," he added.

His family acquired the 177-year-old business, which makes porcelain dishes for the retail market and hospitality industry, out of insolvency in 2020.

Current bulk prices for gas of around 10 euro cents per kilowatt hour (kWh) were down from 15-20 cents early in the year, but were still not commercially sustainable longer term, he said.

Germany's energy-hungry sectors, including chemicals, metals, paper, ceramics and porcelain, are in turmoil after the country last week triggered the "alarm stage" of its emergency gas plan in response to falling Russian supplies.

Russian gas producer Gazprom said earlier in June capacity through the Nord Stream 1 pipeline would be cut to just 40% due to the delayed return of equipment under maintenance.

European leaders such as German Chancellor Olaf Scholz have questioned whether the cut is a political reaction to Western sanctions on Russia for its attack on Ukraine, which Russia denies.

Kahla said it was satisfied with the way the energy regulator has so far handled supply cuts. Its scheme includes a planned tender bidding system to encourage manufacturers to consume less and a detailed survey of the needs of the industry.

Jeschonowski is confident that a surprise drop in pipeline pressure, dreaded in particular by ceramics and glass makers whose ovens can be wrecked by sudden gas cuts, will be averted.

Nevertheless, it is difficult for the firm to cut gas use.

"I compare it to a bakery, run with a lot of passion. A baker has to keep his oven going. Asking him to save energy doesn't really help, because he wasn't wasting any energy before," he said.

Only a handful of porcelain manufacturers are left in Germany amid low-cost competition from Asia and they have exhausted all energy efficiency measures, he said.Jeschonowski added that relocating abroad to cut costs was out of the question for the company, which is named after its home town of Kahla in the state of Thuringia.

"I have a passion for producing in Germany," he said.

(Writing by Ludwig Burger; Editing by Alexandra Hudson)

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