Steel price hike dents smaller companies

2008-07-03 00:00

Recent steel price increases have meant that medium- to smaller-sized companies carry the brunt of the price increases and many are now experiencing cash flow problems.

Coface industry analyst Wayne Basson said that although increased steel prices mean increased turnover, they also mean superficial growth.

Larger companies appear to be purchasing bulk steel just before price increases come into effect to make bigger profits once prices are increased. However, medium to smaller companies cannot afford such a strategy.

“Highly geared companies are also at risk. They are already feeling the pressure of the interest rate hikes. Consumers purchase from these smaller steel suppliers, but consumer spending is down due to high interest rates, petrol price increases and inflation on food and other goods. Smaller companies are therefore losing turnover.”

The steel industry is driven by the building industry and the government’s need to develop infrastructure and build stadiums for the 2010 Fifa World Cup has driven the steel industry.

Basson said the dip in consumer spending as a result of interest rate hikes has affected the building industry as much as it has other industries and sectors, such as retail.

“Steel has gone up by [about] 40% this year alone. Couple this with rising interest rates and production being stopped due to electricity shortages, and the steel purchasers are facing challenges,” he said.

Delayed production as a result of energy shortages has had a direct affect on the supply of raw steel, he added.

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