Featured on the left (click to enlarge), is the Purchasing Index for steel showing the rate of increase in a basket of steel bought by the RSA Mining Industry. The graph shows that the basket prices have risen on average by 50% over that last two years with a major spike recently. . “The sudden increase is the effect of the first large increase from Mittal; there is another one due in June 2008,” Alan Low, MD of Purchasing Index told SmartProcurement.
How will this fuel inflation?
According to Low, “The secondary impact of these increases is still to be felt, as added-value manufacturers incorporate the higher steel prices into their finished product selling prices.”
“Furthermore it is unclear whether the massive increases in iron ore agreed between the global iron ore producers and the steel companies have been factored into these steel price increases. If not, should the industry be expecting a further round of increases later in 2008 or early 2009?”
“When one considers how much of the products bought by the mines are steel based, an increase of this magnitude seems certain to affect a significant proportion of their total spend on goods. We are urging our mining clients to build or update their risk models with this data and ensure that these inflationary effects are understood by the organisations as a whole and senior management in particular.”
Alan Low can be contacted on the details below:
Telephone: +27 11 803 0005
Cell: +27 84 890 0005