Will your investment portfolio and taste buds survive the big European carbon dioxide shortage of 2018?
Brewers, along with producers of soft drinks, chicken and other packaged foods, have been grappling this month with a hit to CO2 supplies.
It’s coming at a tricky time, as temperatures are climbing and soccer fans are flooding to pubs, bars and restaurants to watch the World Cup.
Here’s what the summertime shortage could mean for shareholders in beverage companies — and for regular thirsty folks.
What the fizz?
Trade publication Gasworld first reported last week about the “worst supply situation to hit the European carbon-dioxide business in decades,” adding that the U.K. appeared to be the hardest-hit country. CO2 is used to put the fizz into beer and soft drinks, and it helps extend the shelf life of poultry and other meat.
Ammonia plants serve as a major source of food-grade CO2 in Europe, as the gas is a byproduct. But ammonia is manufactured for use in fertilizer products, and there is less demand for those from farmers in summer. So such plants regularly shut down in April through June, that industry’s slow period, Gasworld noted.
“What has compounded the situation this year is not only the timing of all the maintenance procedures, but that ammonia market prices have fallen to a low and imports are available from outside of Western Europe,” the trade publication reported.
That has led to European producers prolonging the downtime for ammonia plants. In addition, higher prices for natural gas NGN18, +1.40% — a major raw material for ammonia manufacture — have crimped profit margins and provided another reason to stay shut down. Technical problems at some plants also helped the situation become “critical,” according to Gasworld.
How long will it last?
The supply crunch looks set to improve, the trade journal reported more recently. “I do not expect to see any severe shortages of beer or fizzy drinks. Some of the big branded breweries have their own CO2 recovery and production, so they can keep on producing beers and lagers,” said John Raquet, the trade publication’s founder and CEO.
How is it affecting companies?
From Coca-Cola Co. KO, -0.53% to Heineken NV HEIA, -0.12% HEINY, -1.15% , key companies have said they’ve been affected by the CO2 shortage in Europe.
“We are currently responding to an industry-wide issue that is impacting the supply of CO2 in the U.K.,” said Coca-Cola in an email to MarketWatch.
“During this period, we’ve paused some of our production lines for short periods, however there has been no disruption to supply to date and we are continuing to fulfill orders to our customers,” the company added.
Heineken has warned British pubs about low supplies for two of its popular beers — Amstel lager and John Smith’s bitter. “We’ve been informed by our CO2 supplier that they are facing a major issue with supply availability in the U.K.,” a spokeswoman for the Dutch brewer told the Wall Street Journal.
A.G. Barr PLC BAG, -0.58% , known for the Irn-Bru soft drink that’s popular in Scotland, sounds like it’s managing to weather the shortage. It has confirmed that it is “producing normally” at the moment, as it’s “benefiting from the decision to increase CO2 storage last year,” said Numis Securities analyst Damian McNeela in a recent note.
Another U.K. soft-drinks company, Britvic PLC BVIC, +1.30% has said it will see an impact, but has indicated that it is working closely with suppliers to help mitigate the problem, as well as seeking to secure alternative supplies of CO2, according to McNeela.
What does it mean for affected companies?
The Numis Securities analyst said he’s not changing his predictions for the beverage companies that he covers
“Clearly, this shortage comes as the industry moves into peak seasonal demand and, if the situation remains unresolved, could be a negative catalyst for earnings for all companies in our coverage universe” McNeela said. “However, given that the potential impact is difficult to quantify at the moment, we have made no changes to forecasts.”
One thing that beer drinkers can do
CO2 isn’t used in old-fashioned real ales, which are naturally carbonated in casks or bottles by the live yeast they contain, noted Paul Davies, a Heard on the Street columnist for the Wall Street Journal.
So beer drinkers visiting London might want to try these ales.
“The British are famous for serving up warm, flat beer — or at least you think they are,” wrote Davies, as he also said: “Warmer, flatter beers might be making a big return after all.”