Industry has no choice but to accept steel increases

- Last updated on GMT

Related tags: European union

EU steel producers are likely to push through price increases in
the new year, and packaging firms and machinery makers will have no
choice but to accept them, writes Anthony Fletcher.

Much of this has to do with the rapid industrialisation of China. The country requires large amounts of imported steel and other basic commodities to fuel its growth, and this strong demand has had a number of knock-on effects.

In effect, growing Chinese steel consumption has been translated into increased raw material prices and rising maritime freight costs.

This, coupled to better oriented growth perspectives in end user markets in Europe, has allowed the European steel producers to announce price increases. Increases should continue to take place along the year 2004.

According to steel analyst MEPS, Arcelor is considering raising prices in the first quarter 2005 by 3 to 7 per cent, depending on product. Corus and ThyssenKrupp are likely to lift their figures by a similar amount.

As a result, EU price levels are nearing our average world market values. MEPS​ predicts that this could result in an increase in imports in the near future.

Prices have moved up in several EU countries this month. They are expected to increase further as European scrap charges are on the rise again.

In Eastern Europe, Polish domestic sales are improving in-line with the general economy. Import penetration is modest and price trends remain positive.

The fourth quarter is sold out in the Czech and Slovak Republics. Distributors are carrying very little stock. Their margins are good. End users' inventories are also low. Local producers have already announced that prices will be even higher in the next trimester. An amount of 4 to 5 per cent is being quoted.

Customers, says MEPS, will have no choice but to accept the decision.

These increases will have immediate repercussions on the prices of packaging. According to the Association of Fruit and Vegetable Processing Industries (OEITFL) estimates, raw material price rises could lead to more expensive food on the shelves.

"Prices often increase from year to year, but his year we have seen an increase across the board,"​ OEIFTL secretary general Pascale Keppenne told FoodProductionDaily.com.

"Now we hear that some steel prices could be increased by a massive 20 per cent, which would make negotiating buying cans very difficult. Steel makers are clearly preparing to pass on costs to can makers. We are worried."

Economic growth in China has been coupled with a rise in the cost of living there. China, which experienced several years of deflation, is seeing rising prices in 2004. Many believe that some of China's exports will eventually be priced higher as a result of the inflation there, and this scenario will only add to global inflationary pressures.

Chinese traders are still loathe to place orders with overseas suppliers without careful consideration because international prices are so much higher than those in the domestic market. For the same reason, export volumes are increasing rapidly.

Related topics: Markets

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