From: Paul Sullivan, CEO, Anglo European Group
With additional comment by Richard Evans of Davro Steel
We hear from all around the industry of price rises in a broad range of commodities, including steel, aluminium and PVC-U resin, which seem to have prompted suppliers to impose what they are calling ‘surcharges’ on their products.
But it is very likely that the cost of steel especially, will continue to climb for the foreseeable future, and prices will remain high for the next 12 to 18 months at least, and if prices cool at all, they will never return to pre-pandemic levels. So for anyone to pass on these price rises as ‘surcharges’ gives a false impression that it is simply a short-term issue – we need a reality check.
Focusing on steel, the unparalleled volatility in global price rises is the result of a number of factors. These include the cost of iron ore, closure of a number of steel mills due to plummeting demand during the early stages of the pandemic and the permanent closure of others. Production curbs in China and a surge in consumer demand as the pandemic lifts in markets around the world are also contributing factors. Neither should we forget that whilst we in the UK are heading out of the pandemic, in many countries the disease is still surging. When these countries, such as Brazil and India for example, eventually recover then pressures on steel supply will further increase.
I believe steel mill owners are taking advantage of the rises in global demand to shore up profitability. The unrealistically low prices of steel pre-pandemic have also contributed to the closure of some mills, and we are now paying the penalty for that. I have been told privately: ‘Why would the billionaire owners of steel mills choose to start manufacturing more steel when they have managed to make less and push prices to £1200 per tonne? The mills are very happy making far less product for double the price of last year’.
Tendencies for fabricators and installers to limit increases in prices to annual or even six-monthly rises should be reviewed. Steel is just one commodity that will face continued price volatility during the foreseeable future and the reluctance of suppliers throughout the supply chain to limit price rises to once or twice a year, may result in business failures. This is the New World; companies should be prepared to pass on these rises as they occur to their customers, including to homeowners at the end of the supply chain in our sector. That is crucial to ensure operating margins are not destroyed.
At Anglo European we buy our steel months ahead to ensure continuity of supply for our customers. With orders now placed for 2022. Being unable to produce and sell product will be more disruptive than any price increases and window and door manufacturers must take that into account in their future planning. Irrespective of cost, availability is a very real issue. We are working hard to protect our customers.
Richard Evans, Davro Steel: “During my 30 years’ experience in the steel industry, the current price cycle increases are unprecedented. Following the dramatic reduction in global production capacity due to Covid-19 last year and the subsequent bounce back in demand worldwide in the second half of 2020 and early 2021, has meant that demand has been significantly greater than supply. This imbalance looks as if it will continue well into next year and possible beyond, with prices continuing to be firm,”
www.angloeuropeangroup.co.uk
