Ministry: energy resource prices and government decisions to affect industrial sector

Future developments of Latvia’s industrial sector will be affected by the situation with energy resource prices and the government’s possible decisions to improve the situation. If the Omicron variant of Covid-19 spreads rapidly, it is possible consumption of industrial goods may decrease, notes the Ministry of Finance.
Nevertheless, currently demand for goods remains high and the general mood of manufacturers is positive.
At the end of 2021 Latvian industrial workers faced new challenges, which will likely make 2022 more complicated. In spite of the rapid growth of energy resource prices, which make raw materials more expensive as well, the industrial sector still spent 2021 in a positive light. In January-November period industrial volumes increased 6.4% when compared to the same period of 2020, according to the latest data from the Central Statistical Bureau of Latvia.
In eleven months of 2021, the 6.4% increase was caused mostly by processing industry’s 7.5% increase and mining and quarrying sector’s 5.9% increase.
Electricity and gas supply fluctuated greatly last year, reaching an increase of 0.9%.
In November 2021 there was a 1.1% increase for industrial volumes, which is the smallest increase observed in the eleven-month period of 2021. This increase was caused by the 1.9% increase in processing industry, 2.3% increase in mining and quarrying industry and a 4.7% drop in electricity and gas supply.
The year 2021 was very profitable for wood industry even though production volumes had decreased at the end of the year. Production volumes decreased 10.2% in November 2021, which is the biggest recorded decrease since January 2020. The wood industry has the highest ratio between the processing industry’s sub-sectors, which has a major influence on the growth of the processing industry.
The big drop can be explained with high production base in 2020 – production output records were achieved in November-December. Furniture production continues demonstrating growth with production output in November 2021 exceeding those of November 2020 by 16.4%.
While there weren’t any major changes observed in food production in the second half of 2021 when compared to the same period of 2020, beverage production in November 2020 showed a 24.1% increase when compared to a year prior.
Chemical goods production sector also demonstrated growth across 2021 until November, when production output increased by 30%, which was largely due to increased demand for disinfection substances during the pandemic. Considerable increase also came from manufacture of fabricated metal products (+13.8%), as well as automotive industry (+33.7%). A decrease was observed for metals (-47.3%) and electrical equipment (-6.5%) production.
Latvian industrial workers have certain concerns for 2022. Concerns come from both the rapid climb of energy prices, as well as shortage of certain raw materials on the global market. While the price of electricity on the exchange was on average 45 EUR/MWh in December 2020, in December 2021 it was 207 EUR/MWh, which means the price increased 4.6 times. On some days the price exceeded 400 EUR/MWh and at times the price was over 1 000 EUR/MWh.
Construction and lumber materials construction industry consumes a lot of electrical energy. This means construction material prices increase the most rapidly, reaching an increase of 18.1% in November 2021 when compared to November 2020. However the construction materials sales expected to remain on a high level, because the year 2022 is shaping up to be very intensive for Latvia’s construction sector.
Electricity and gas supply output dropped 4.7% in November 2021 when compared to November 2020, which was largely influenced by the drop of electricity volume production by 8.4%. Nevertheless, there was a 16% increase of energy production output from hydro electric stations. Energy production from CHP plants dropped 19.5% when compared to the same period of 2020. In November 2021 the volume of electricity imported to Latvia exceeded that of exported volumes 2.4 times.