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 | | STEEL PRICES RISE! | | | BeA Fastening Systems Limited | | 28/07/2008 | | | Paul Lee of BeA Fastening Systems lets you into a trade secret…
There has been significant publicity recently regarding the unprecedented rise in fuel and foodstuffs. In fact, the news has been dominated by how much more we are paying for a loaf of bread (is it 40%?) and a litre of petrol (up by 25% in three months). However, if I told you there is one commodity whose continued increase dwarfs those in fuel and foodstuffs, would you believe me? I can’t blame you if you don’t, because the escalating price of steel rod and wire must be the best-kept secret in the trade!
There are two questions requiring answers - why is this happening, and why is the general public unaware?
Why is it happening?
Global steel demand continues to show strong growth and this is specifically seen in the newly industrialised countries of China, Asia and the Middle East. China, for instance, is forecast to consume 35% of the world’s steel this year with Russia, South America, Saudi Arabia and South East Asia all predicting growth in excess of 10%. This is putting pressure on the supply of raw materials used in steelmaking, resulting in the following cost increases:
Iron ore increased by 71% in 12 months. Since 2004, iron ore prices have risen by a huge 300%.
Coking coal has risen by 240% in 16 months, mainly attributed to falling output from Australia.
Scrap prices in the UK have risen by 75% since March 2008 - so don’t throw your scrap away, sell it!
Once these raw material cost increases are taken in conjunction with the rising cost of freight and energy, then the inevitable result is an increase in price of steel wire and steel derivatives right through the supply chain.
The effect of the above has seen steel billet prices rise by 100% since 2007. The knock-on effect has seen a 50% increase in finished products such as nails, screws and other fasteners. There are further increases forecast for the coming months and so these industrial commodities look likely to rise and keep on rising.
Headline news?
Obviously the escalating price of steel isn’t headline news for the “man in the street” but the financial sections of our media have also largely ignored what for many may be the death knell of their business. If you are faced with a 50% increase in your costs and a customer base that is indifferent, ignorant and/or intransigent to price increases, then the inevitable result is a lowering of margins and in extreme cases, a complete loss of margin. Rumour has it that even the big car companies are beginning to feel the effects, so perhaps when Ford or Toyota raise the price of their cars due to the “steel price” effect, we may see more information and hard news in the popular press. Coupled with the frequency of steel price increases are the rumours of steel scarcity and rationing has already taken place for some steel grades into certain market sectors.
A desperate situation - no! A difficult situation - yes!
Given the support, co-operation and understanding of all involved in the supply chain, then the current situation can be managed but not without some reality at the sharp end where inevitably the pricing spiral ends and the piper has to be paid. It is unfortunate that steel may assume the mantle of an expensive commodity since in real terms, steel prices have declined over the last 20 years and only started to increase in 2003 but that is scant solace to manufacturers and distributors who currently are facing 70% increases.
So if you are happy with the current situation…fine! If you are not then let’s do something about it and enlist your government agencies both in the UK and EU into bringing into legislation some level of protection for European manufacturers and stock holders.
The current Brussels initiative on wood screws, hexagon screws and bolts etc (Case No. AD525) is an excellent start, but we need to see it expanded to include other mainstream products, eg nails and staples. This isn’t protectionism, it’s survival and we must all play our part in ensuring that the current volatile environment doesn’t sound the death knell for sections of our industry. | |
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