Manufacturers are reporting significant increases in the price of steel alongside major supply issues, with COVID-19 singled out as the major contributing factor.

Depending on the type of steel used and the scale of the operation, Irish agricultural machinery manufacturers are reporting a 5% to 30% price hike in steel.

As bad as the price hike is, the companies are saying it is becoming increasingly difficult to get their hands on supplies, with delivery dates being pushed out by weeks and even months in some cases.

Price hike

Manufacturers have said they are trying to withstand price increases, but they are inevitable at this stage. Companies were hesitant about going on the record, but many have indicated a price hike of 1% to 6% on the end product, depending on the material used in the build. Some companies have already implemented these price rises in recent weeks.

For example, one prominent slurry equipment manufacturer told the Irish Farmers Journal they were forced to add a 5% increase in December, with a further 3% increase coming into place this month.

Take a well-spec’d 2,600gal dipped tanker with a 7.5m dribble bar costing in the region of €35,000 plus VAT, that 8% increase will cost the end user around an extra €2,800 plus VAT.

Meanwhile, a well-known trailer manufacturer in the Northern region has said the price of building the worst-affected units with large amounts of steel has jumped by up to 10%.

Since Brexit came into effect on 1 January, steel exported from the UK into the EU, including Ireland and Northern Ireland, became subject to a third country import quota. Once that quota is surpassed, UK steel exports will be subject to a 25% tariff.

However, one NI manufacturer told the Irish Farmers Journal this 25% tariff was initially placed on all steel coming from the UK into Northern Ireland by the NI government, with steel which wasn’t subject to the quota claimed back through a rebate at the end of the year. This initially caused much confusion in the industry, but has since been changed.

Causes

We spoke to Mike Curtin from Coen Steel in Galway, who would supply a number of Irish manufacturers, to get a feel for the ongoing situation.

“There is a lot of turmoil in the steel industry right now, most notably around price and availability. The cost of raw materials worldwide such as iron ore has gone up in price and mining mills don’t seem to have the capacity to meet demand,” he explained.

“COVID-19 restrictions mean many of these mills are working at 60-70% capacity which is having a major effect on supply. China is importing major amounts of steel for infrastructure projects taking place within the country which is also snapping up supply.”

“Since December alone, we have seen the price of some steels jump by up to 30%. Shipping times are becoming a major issue for everyone. Typically, we work off a shipping time of four to six weeks. However, this has recently been pushed out from six to 10 weeks. Many mills we buy off throughout Europe are adding price hikes twice weekly, with some not guaranteeing delivery and more refusing to quote.”

“The last time I saw anything like this was in 2007 when the construction industry was at its peak. Current demand is nowhere near that today. The problem seems to lie in reduced capacity at mining mills due to COVID-19. It will be a challenging time for manufacturers who aren’t carrying much stock on the ground.”

Meanwhile, other steel suppliers are saying Brexit is also having an effect on the price of steel locally. Import licences and customs clearances are adding to the administration process for exporters sending steel from the UK, bringing additional associated costs. Freight costs of road transport have also risen due to the added complications and delays through the ports.

Scrap is on the rise

Alongside raw material price increases, scrap steel prices are also on the up. A major steel supplier has noted the recovery of world steel production, reduced availability of automotive scrap and difficulties of scrap collection are all likely to be contributing factors.

The supplier noted we will probably discover the increase is largely attributed to heavy Chinese scrap buying. It is widely reported that the Chinese are making moves towards more environmentally friendly steelmaking which is basically scrap melting. To encourage this process, scrap in China has been redefined from just waste scrap to waste scrap and recycling scrap where the latter carries no duty from 1 January 2021.

Safeguard measures

This news comes seven months after the European Commission published the result of its second investigation reviewing the initial safeguard measures it put in place on steel imports in July 2018.

This package was put in place to defend the European steel industry in the current difficult market situation. The changes were to ensure that the gradual resumption of activity and return to normality takes place in an orderly manner.

Adjustments were made in managing quotas to deter potentially harmful stockpiling by foreign exporters trying to sell large amounts of steel in the EU market in an opportunistic manner to the detriment of the EU steel industry. However, the comment on the ground is that demand seems to be currently outweighing supply.

Components

Some manufacturers who have ordered components recently have noted a reduced capacity of available supply. A combination of the shutdown and reduced working capacity of factories due to COVID-19 and massive delays in custom clearance from the UK due to Brexit is being blamed.

One manufacturer explained: “Some component suppliers on the continent are robbing Peter to pay Paul. They seem to be working off a limited supply and are trying to almost ration the available supply. It’s becoming an issue for finishing machines. The component shortage is ranging from LED lights to bolts”.

Over the past three months, shipping costs from China where many components are sourced has also seen a significant price increase, due to a shortage of containers. However, it’s understood this is forecasted to ease in the near future.