The first quarter of the year saw steel prices spike to almost unsustainable levels. This was down to the steel furnaces being shut down during Lockdown 2.0. The effects of this throughout the industry have been noticeable as numerous areas of our industry have seen an effect with delays and cost increases.
2020 saw unprecedented volatility and price increases, cast iron ore made to use steel and scrap steel almost doubled, meaning prices were continuously pushed higher and higher having a considerable effect on suppliers budgets and huge impacts on supplier sales. This has continued in 2021
The current market remains extremely volatile and very competitive and with predicted price escalations the industry is concerned, add on top, the reduced availability of some raw materials and we are looking at a very real issue.
To add to our woes, you may have noticed, a price increase on other products in the industry too, just recently cement and aggregates have been added to the list of products in short supply with prices nearly doubling overnight.
With the increase of overall manufacturing costs, we have seen an increase in wholesale inflation in the UK economy – WPI* inflation in February increased by 4.7% compared with 2.03% in January 2021 and 2.3% in February 2020. The metals group index weight is 9.6% and saw inflation of approximately 13% in February 2021 (versus February 2020) and 14.5 increase in January (versus January 2020) Flat steel products, mainly used in the auto sector saw the sharpest rise, increasing 21.6% you in February 2021 compared with a 4.8% fall in February 2020.
Long steel products mainly used in the construction industry saw growth of 18.3% in February and inflation in semifinished steel products increased by 10.2%
To summarise:
- Increased steel and iron ore prices and demand from China, the USA and Europe are driving the increase of international steel prices.
- Domestic steelmakers have affected several price hikes since H2FY21. Input costs have increased in many end-user industries such as construction, machinery and automobiles as well as others due to the increase in steel prices.
- The price of steel is set to remain elevated in 2021 fuelled by higher demand which will impact core inflation as well as keep the core WPI inflation at elevated levels.
- Global steel prices have remained higher than domestic prices on landed price parity basis which is keeping imports in check.
*WPI The World Price Index (WPI) is a monthly index of PPP exchange rates against the US Dollar across the world’s 10 largest economies. Taking inspiration from and building on the concept of the Economist’s ‘Big Mac Index’, the WPI allows for a more timely method of making economic comparisons across countries. www.world-economics.com