Rising costs of materials

Given that Ukraine is (was) one of the biggest suppliers of steel billets this is hardly surprising. I did hear in the news that their largest steel mill had been partially destroyed too so even if the conflict does end production won't be soon to resume.

Unfortunately, serious though this is, it's not the reason prices of many commodities are rising across the board. Normally, Ukraine makes about 1% of the world's steel output [World Steel in Figures], and losing it would cause a temporary bump. These are not normal times!

When war breaks out in Europe, it causes a massive loss of confidence across the financial system. Partly because of the risk violence might escalate, completely disrupting global trade or worse, partly because uncertainty causes people to cancel or defer purchases and to look for safer sources of supply. UK imports from the Ukraine include quite a lot of food:

So, at the moment, UK food importers will be trying to source food from elsewhere, cereals coming most obviously from North America. So the UK and all the other countries who bought cereals from Ukraine are now bidding against each other for what is available. Supply is interrupted, shelves empty, and prices rise until the system rebalances.

Looking at what Russia exports to the UK reveals more stuff that now has to be bought in competition with the rest of the world:

Note the UK imports $19 billion dollars worth of 'Pearls, Precious Stones, Metals, and Coins' each year. My guess is this is mostly Metals other than Iron, Steel and Aluminium. So we can expect these to rise in price as well.

The value of Russian Exports to the UK hints at just how much pain aggressively applied Western sanctions will inflict on ordinary Russians. Mr Putin's war isn't going well militarily, he's trashed Russia's international reputation, and now faces years of self-inflicted poverty. Trouble is, when countries put a strong man in power who cannot be removed peaceably, they run a high risk he is a megalomaniac who will ruin everything. Thousands of examples throughout history and in modern times. All this changes minor and major financial decision making: Brian and other hobbyists are thinking twice before buying metals, so are companies, major multi-nationals, whole countries, and economic blocs like the EU.

This is on top of a major slump and surge in demand caused by COVID and other adventures. The Office of Budget Responsibility publish this graph of UK inflation, showing that the pound is losing value rapidly at the moment, and recovery is not expected until 2024: Ukraine puts this in doubt.

That trouble was afoot appears in 2016, when inflation suddenly rose over 18 months by nearly 3% and then recovered slowly between 2018 and 2021, when it took off again. The first bump is the cost of uncertainty due to Brexit. The second is more to do with COVID and material shortages, but it coincides here with the UK actually leaving the EU, and now the repercussions of the war are likely to make UK inflation worse. Nobody knows for sure: world trade is destabilised, and it's unclear how or when it will end. I hope the OBR are right.

Bottom line, because the value of the pound is sinking and prices are rising, it's better to spend now rather than later. Stock up while stuff is still relatively cheap because it's unlikely prices will drop in the near future or that the value of saved pounds will recover. But watch out for sellers who realise what customers are doing and hoist prices in advance!

Interesting times ahead.

Dave

Steel prices were rising before Ukraine got messy. They blamed it on Covid, then on logistics/shipping supply chain issues, then on truck driver shortages, then coal shortages and now it's back to Covid again with the latest lockdowns in China. Long story short: price gouging. And once the price has gone up and proved that the market will bear it, don't hold you breath waiting for it to come down.

3 x 6m lengths of 30x6 black rolled delivered just cost 40 quid . (Local fabricator ..i asked if he'd put my order in with his to get free delivery )

Not too bad ?

)

Edited By Hacksaw on 12/04/2022 16:42:59

Just received an email from Reeves and they say that one of their casting suppliers is quoting a 20% increase in prices from their foundry. The world seems to have gone mad with everything rocketing in price, I shoot clay pigeons on the weekends and there has been an upward trend in the price of cartridges for some time now and recently the price is taking off. The blame is put on the war, Covid etc but there is blatant profiteering going on, the bubble must burst some time. Dave W

China producing over one billion tons out of a 2 billion total tells me that shutting a coal mine in Yorkshire is going to have zero effect on climate pollution

We are squabbling over monkey farts compared to what's going on abroad

The main scrap cycle now seems to be india/asia to China scrap steel market and If you live somewhere like Bangladesh you can get huge amounts of ferrous/non-ferrous for peanuts

We've outsourced everything to overseas except the final-to-be-gouged-consumer

The capitalists would surely never do that to us would they??

Edited By Ady1 on 12/04/2022 17:22:40

Who are 'they'?

There's a simpler explanation. How do you decide who gets the goods when a rich Kiwi and a rich Aussie both want to buy a ton of steel off a poor Chinaman, and he only has one ton to sell? And all your other suppliers are stock-out as well. The usual answer is to hold an auction, highest bidder wins. Basic law of supply and demand: prices rise during a shortage and fall during a surplus. It's why Gold costs £1500 per ounce and sand is cheap.

Not the same as Price Gouging, which occurs when a supplier takes advantage of a temporary problem such as an earthquake or COVID panicked Aussies buying every toilet roll south of the equator.

Even worse, some economists argue Price Gouging is a good thing because it sorts out priorities, stuff ending up only with people who really need it. Don't believe it myself: when Covid kicked off in the UK, too many shelves were emptied by selfish well-off folk filling their Range Rovers with Pasta, Bog Rolls, Eggs, Milk and Baked Beans. Single mothers with a nasty cough and 5 kids to support could go to hell...

It's been proven many times that 'economists' know bu**er all about anything especially the 'economy'.

Tony