4 ms·

Without knowing what industry you are talking about it's hard to engage in any meaningful dialog. It clearly doesn't matter what percentage of the input cost i

Without knowing what industry you are talking about it's hard to engage in any meaningful dialog. It clearly doesn't matter what percentage of the input cost is energy to whether the plant is profitable. So long as that percentage is non-zero there will always be an energy cost at which the total cost to produce is higher than the market price to sell (ask any industry in Texas). Clearly there are other factors too, in your example it seems like labour costs are very high or perhaps contractual demands on output mean down time is unacceptable.

bluGill 6y ago
Input costs and final price are what matter to profitability. The machines are part input cost, but they are spread across many different products, often over years. The reason an idle machine is bad is because you have to pay interest on the loan (write downs and all that complexity). You also have to pay rent (taxes) on the building they are in. You need to do basic maintenance (HVAC so they don't deteriorate). You need to ensure the machine operator (which might be a rare skill) is available when you put it back to work, which might mean paying the operator to do nothing just so he doesn't find a new job while laid off. All of these raise the input cost of restarting after a long period of being idle - sometimes you are better off scraping the machines and buying new if you need them. Against that you have demand and ability to store the finished product. Some things can be stored up (just in time calls this bad, but it isn't always a bad thing), while others degrade quickly. Some things your customers will order well in advance so you can plan around demand, while others you get an order for "yesterday" (if only you had a time machine). Depending on how all of the above work out idle factories have different economics.

bluGill 6y ago

Input costs and final price are what matter to profitability. The machines are part input cost, but they are spread across many different products, often over years. The reason an idle machine is bad is because you have to pay interest on the loan (write downs and all that complexity). You also have to pay rent (taxes) on the building they are in. You need to do basic maintenance (HVAC so they don't deteriorate). You need to ensure the machine operator (which might be a rare skill) is available when you put it back to work, which might mean paying the operator to do nothing just so he doesn't find a new job while laid off. All of these raise the input cost of restarting after a long period of being idle - sometimes you are better off scraping the machines and buying new if you need them. Against that you have demand and ability to store the finished product. Some things can be stored up (just in time calls this bad, but it isn't always a bad thing), while others degrade quickly. Some things your customers will order well in advance so you can plan around demand, while others you get an order for "yesterday" (if only you had a time machine). Depending on how all of the above work out idle factories have different economics.