The world’s industries are raising prices, and in turn adding to inflation, as they deal with the rising cost of oil and resources.
Posco, the world’s fourth largest steel maker, revealed last night that it was lifting its steel prices for a third time this year: the company said it would raise prices of hot-rolled and cold-rolled steel products by 21% respectively, starting next Tuesday.
The cost of steel production is increasing due to rising oil prices and higher prices for iron ore, of which Rio Tinto and BHP Billiton are in part responsible for. And this will add to price inflation.
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Posco’s increase will take the cumulate size of its price rises this year to close to 60%. It will be followed by other companies as they try to recover cost increases from the Australian iron ore and coking coal settlements and from higher oil prices.
And the continuing surge in oil prices has forced one of the world’s major petrochemical companies, Dow, to lift prices for the second time in a month: in May it said prices would rise by 20% on June 1, last night it said prices would rise another 25% from next Tuesday, July 1 and US customers would have to pay surcharges of $US300 or more a load for chemicals where Dow is the shipper. That surcharge will be paid in addition to the higher cost of the chemicals.
General Motors will lift prices of 2009 new models by 3.5%, or $US1000 from later this year, even though it is cutting production and offering zero finance for six years to try and reduce its unsold inventory.
GM said the price rises were to cover the rising cost of steel, rubber and aluminium and the impact of higher energy charges at its plants. That GM is trying to lift prices in a market were sales have fallen 25%, says more about the desperate situation the car giant finds itself in. Economists claim the US car giants have no pricing power at the moment, but GM is trying and will be joined by Ford, Chrysler and Asian manufacturers.
The higher steel and chemical prices will stick. Steel is booming around the world. Japanese steel groups have boosted their prices by more than 40% in some cases while the world’s largest steel group told Ford, GM and Chrysler in May that it will impose surcharges as high as $US250 a tonne on rolled steel supplied from this month onwards. That’s an effective 40% rise in some cases.
US steel and car industry reports give this example of the rampant price inflation worming its way into costs — the main price benchmark for automotive steel is hot-rolled carbon sheet steel, which is used to make bumpers, wheels and frames. In the fourth quarter of 2007, the spot market price was $US535 a tonne. After the surcharges, the spot price — which is higher than contract prices — is just over $US1000 a tonne.
No company can survive that sort of price pressure without resorting to higher prices, cuts in production, cutting the amount of steel used in cars and/or laying off staff. That’s what Ford and GM are now trying to do as quickly as possible.
These economy-wide price pressures in the US were revealed on the same day as the US Federal Reserve started to consider higher prices, the state of the economy and whether interest rates should change.