The Rhine has receded, transports are disrupted

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Extreme heat wave and drought in Germany disrupts ship traffic on the Rhine, an important transport route for the economy. It is possible that this situation will both feed inflation by compressing the supply chains and cause great damage to the economy in Germany, which is already expected to recession due to the natural gas bottleneck. Coal prices reached record levels energy Problems in the Rhine, a crucial waterway for transporting commodities, and the rally in natural gas prices have resulted in coal prices tripling this year. After a ship sat on the bottom in the river, the indicator traded in ICE Futures Europe for 2023 futures coal increased by 5 percent to $307/ton. Due to the energy crisis, Germany postponed the closure of some coal-fired power plants, and took steps to increase coal capacities in the Netherlands, Austria, France and England.

While some ships continue their shipments partially by reducing their cargo capacity, for some ships this road is completely closed. The Rhine River, with a total length of 1,230 kilometers, starts from Switzerland, passes through Germany after passing through the French border, and empties into the North Sea from the Netherlands. The Rhine River, approximately 900 kilometers of which is suitable for shipping, connects Germany’s developed industrial regions to the supply chain. About 300 million tons of goods and products are shipped from the Rhine each year. About 80 percent of water transport in Germany takes place via the Rhine. The steelmaker producing the LNG pipes requested an exemption for gas Germany’s second largest steel producer, Salzgitter AG, which continues to make long-term LNG agreements, requested the government to make an exemption to the company in case the gas industry needs to be cut off from the industry and directed to households. The company manufactures pipes for the two LNG terminals that the country has newly built as part of the country’s independence from Russian gas. After allowing rising gas costs to be passed on to consumers in Germany, households’ bills will be charged at $500 per year. Euro will increase. From October, consumers will pay 2,419 euros more per kilowatt-hour of natural gas.

“The Upper Rhine may be completely closed to traffic”

The authorities and business in the region are watching the water level in the Rhine very closely. Martina Becker from HGK Shipping stated that normally such low water levels are only seen in October, but July and August are very rainy. “The Upper Rhine will probably be completely closed to traffic. We are now approaching the record low water levels seen in 2018. It is likely that the 2018 record (where the distance between ships and the bottom of the river is up to 25 cm) can be seen next week”. A water level below 40 cm in the river (between the ship and the riverbed) is considered a “critical level” and is currently 30 cm.

“The probability of a recession is higher than the probability of not happening”

According to a Bloomberg survey, the probability of a recession in the Eurozone is higher than the probability of it not. Inflation is expected to reach around 8 percent in 2022, about four times the European Central Bank (ECB) target. While the authorities emphasize that strong steps should be taken to prevent further deterioration in inflation expectations, some economists question how much more interest rates can be raised in case of a recession. The Eurozone economy grew at a slower pace in the second quarter than predicted in the leading data, and grew by 3.9 percent compared to the same period last year. The expectation was a 4% growth.

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