Posted by meb at May 19th, 2008

Alternative investment demand that emerged after the U.S. dollar lost value has caused a surge in raw material prices, resulting in extreme increases in the costs of giant steel companies.

The rising costs of investment in industrial commodities such as steel, copper and zinc have led pioneering industrialists to give up their projects worldwide, and are also about to affect several sectors in Turkey.

Besides changing risk perception of investors, the rapid industrialization process in China, India and other emerging countries also plays a role in the surge of raw material prices. Steel companies including ArcelorMittal, the world’s largest steel company, has raised global steel prices between 40 percent and 50 percent within the last six months. The price of steel per ton rose to 120 euros after the advent of the global crisis, distressing many sectors, such as shipping and petroleum and natural gas exploration.

Construction to suffer
Turkey’s construction sector is preparing for a 15-day action in eight cities in order to secure a reduction in prices by steel producers.

Defining the situation as “a disaster,” Bülent Gürsoy, chairman of the Turkish Engineers Union, called on construction, automotive and white goods sectors to take urgent measures. “Per ton prices of some types of iron have risen 110 percent since October. Nobody is aware, but there will be disasters particularly in construction as well as automotive and white goods sectors within a month.”

The automotive sector, which operates mainly with stocks and will make its second largest purchase in June, is expected to experience the hike-related problems during summer months. The sector is facing an anxious wait, said Kasım Gündüz, secretary general of the Aegean Automotive Association. “The sector has not witnessed a decline in capacity at present; however, the real problem will occur during June and July,” he said. “Supplier industry exports mainly to the European Union. Our rivals China, India and Egypt are making 10-year deals at fixed prices with iron producers.”

Some domestic companies that cannot purchase from enterprises such as Ereğli Demir Çelik, also known as Erdemir, import raw material at lower prices from abroad, which hits domestic intermediate goods producers, Gündüz said. “Around 30,000 to 40,000 companies that produce moving parts and motor hoods, will face great distress soon. The problem, in the long run, will also shape the employment structure of the sector, which currently employs 2 to 3 million people on average.”

Vestel raises prices 3 pct
Per ton prices of steel, which is the basic raw material of white goods sector, rose 70 percent within the last six months. “Steel means everything in white goods production,” said Ömer Yüngül, chairman of the executive board at Vestel. “The price hike of steel affects costs, and inevitably end-product prices. We have introduced 2 to 3 percent increases in white goods prices.” Consumers’ response to the increases is important, Yüngül said. “There may be a shrinkage in consumption demand in the upcoming period. There is no problem at present; however, I cannot foresee what will come up next.”

Global impact
In Venezuela, the Hugo Chavez-led government has nationalized the country’s largest steel producer in order to control steel prices and limited steel exports. Many giants in shipping, mobile phone operators and petroleum giants are also canceling projects.

Steel prices have not topped yet, according to the Wall Street Journal. The fact that the global steel market is managed by certain monopolies limits the bargaining power of many sectors worldwide. Even steel producers are taking measures to prevent any negative impact on their sales due to price hikes. Rather than buying iron ore from mining companies, many of them have started to purchase and run iron ore mines. The companies are considering dismissals and trying to find ways to prevent their customers’ shift to cheaper products.
source: Turkish Daily News