6 May 2008
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Johannesburg — ESKOM's application to lift electricity tariff s 60% has drawn criticism from nearly all fronts, but few seem to have noticed that steel prices in SA have soared 65% in six months .
The higher steel prices will be widely felt. Consumers will pay more for goods such as motor vehicles, household appliances, packaging and in building costs. It will add to the inflation burden, putting further pressure on the Reserve Bank to raise interest rates.
A slew of infrastructure development projects are under way and demand for steel in the domestic market has shot to levels last seen in the 1980s. Many projects, such as Transnet's port and rail expansion, are government-funded, meaning taxpayers may eventually also pay rising project costs.
Are the steel price increases justified? Arcelor Mittal says the increases are due to rising input costs and weaker exchange rates, and are in line with international trends.
Yet Steel Strip, a UK-based steel industry blog, points out steel price hikes in Europe and North America pale compared to SA's 65% increases this year.
Moreover, Mittal gets iron ore -- the biggest input cost -- at a favourable rate compared with competitors through an evergreen accord with Kumba Iron Ore. Mittal's prices are determined on steel price movements in a handful of arbitrarily selected nations.
The Vanderbijlpark-based company should consider being more open with customers.
The Bottom Line is edited by Edward West.
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