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Changes on the raw material market have necessitated price increases for magnetic ballasts
As a result of trenchant changes in the global economy and the uncertain mood affecting raw material markets, the international lighting sector is facing new challenges. Vossloh- Schwabe´s fair and clear pricing policy has always set the company apart from the competition with regard to its customer relationships. Prices have been consistently been stable, accountable and of a long-term nature, all of which are factors our global customers appreciate.
The slight improvement in the global economy and the incredible boom of the Chinese economy in the auto- motive, building and construction sectors have led to a worldwide shortage of raw and primary materials like coke, iron ore, oil, copper, nickel, rubber and above all steel. Between 2004 and 2008, China alone will require 350 million tons of steel per year. However, China´s domestic production capacity only totals 230 million tons per year. This situation has resulted in a global increase in raw material prices.
With regard to VS it can be said that in comparison to the previous year, prices for electrical quality sheet metal have risen by 20 percent and for copper and copper wire by up to 40 percent. According to the price forecasts of our suppliers, increases of up to 50 percent are to be expected for 2005. Just like any other company, VS is also striving to limit the effects of these changes.
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Despite undertaking consistently higher investments into improving productivity than the sector average, we are still unable to fully compensate for price hikes of this kind. The increase in VS prices that this situation has brought about are the result of regular price revisions. Especially in recent years you will have noticed that VS has invested considerable sums into the areas of automation, productivity optimisation, R&D, quality issues, logistics and product variety, all with our customers in mind.
However, the price increase that will become effective as of July 2004 is solely down to the substantially higher costs for raw materials and only affects magnetic ballasts. The VS sales team will organize personal consultation with its customers in order to present individual solutions.
The following pages provide information about the background and consequences of this raw and primary material shortage and the extension of our services. We are confident you will see we are doing all we can to ensure you are satisfied with our products and services.
We look forward to continuing our trusting cooperation with you.
Yours,
Hiroyuki Tanaka
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Facts and Figures: Raw & Primary Material Shortage
In the past few months the price development on the steel market has reached a critical point. Many experts share the opinion that this constitutes a real danger for the as yet delicate state of the economy.
The introduction of protective import duties on steel and steel products in the US around two years ago and the countermeasures launched by the EU Commission have resulted in a steady and substantial rise in steel prices.
In Europe, this unabated price increase has resulted in many com- panies and sectors experiencing great difficulties in obtaining the steel they need.
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This situation has arisen due to the great demand on the Chinese market. In Asia and the USA, prices are currently being paid for steel that even outstrip the extremely high prices in Europe today. Former importers into the EU therefore now prefer to supply these non-European markets. At the same time, European steel producers are feeling the pinch of the international shortage and higher prices of raw materials like iron ore, coke and scrap metal.
Furthermore, over the last 12 months, there has been an almost five-fold increase in the price of shipping raw materials by sea.
Steel producers in Europe are currently facing grave problems in procuring the raw materials they need to satisfy the European market. In many sectors, the uncertainty is so great as to constitute a real threat. It is proving almost impossible to procure the feedstock needed for processing purposes and price agreements have ceased to be valid.
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Existing costs have to be revised; longterm plans are difficult to implement. As a consequence prices are up in all sectors that require steel and other raw materials.
ORGALIME is the European patron organisation that represents the respective associations of the machinery, metal goods, electrical and electronics sectors, which jointly account for no less than two thirds of total steel consumption in Europe. This organization has taken up the topic and roused the EU Commission in Brussels.
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The Commission has recognized the threat and initiated talks between the European Commission, steel producers (EUROFER) and steel processing companies. ORGALIME is the main representative of steel processing companies with regard to this consultation process.
There is reason to expect this situation will continue or even deteriorate further up to about 2006.
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