Steel and Rubber Price Increases Hit Industry

Rubber and Steel price increases are making a negative impact on businesses across Europe, according to analysts. In the last six months businesses have seen steel prices nearly double from $350 a ton in January to more than $617 a ton in June. This rapid growth is widely acknowledged to have been cause by high levels of demand for raw materials from the Chinese market.

For large-scale steel wheel producers, like Hayes Lemmerz, the price hikes will put a significant dent ($10 – $15 million) in the company’s profits. For smaller companies the consequences could be much more serious. The Detroit news has reported that in the next two months the market is likely to see “multiple bankruptcies.” But it is not just steel wheel manufacturers that are affected by the inflated prices. Tyre manufacturers will have to absorb the costs too when purchasing raw materials necessary for steel belts and beads.

In addition to these problematic prices, the German association of natural rubber processing companies, Wirtschaftsverband der deutschen Kautschukindustrie (WdK), has reported that escalating rubber prices are taking their toll on European companies. The strong price increases of the last six months have cost businesses 30 million euros in Germany alone. As far as WdK are concerned the problems do not end there. The group predicts that similar sized prices increases are still to come.

In the short term things do not appear to be getting any better for either rubber or steel prices. Longer term prospects, however, appear to be a little more positive. According to Purchasing Magazine lower scrap costs and higher coke supply mean that downward supply will gradually take over, forcing the market into lower prices at the end of 2004 and the beginning of 2005. Even so the projections of reduced prices for 2005 and 2006 will still be higher than the actual prices were in 2002 and 2003.