In times of volatility, responding quickly and flexibly is crucial – and a great advantage in a family business!
In this blog, Peter Jägersberger, Managing Director and Partner of the PREIS Group, analyses developments in the first quarter of 2022, which until very recently nobody would have thought possible, and gives us the key facts.
Making the right energy-buying decisions at the right time
In 2020 and 2021, measures to combat COVID-19 and the consequent restrictions led to a substantial slump in economic output and hence in electricity consumption. A slight recovery was perceptible in the second half of 2021. The post-pandemic recovery ratcheted up demand for energy in Europe, and prices rose accordingly. In Austria, the price of electricity as of April 2022 is 205% (!) higher than in May 2021. Compared with March 2022, the price has risen by 20% (source: Click here). Because of these very high prices, many companies did not enter into long-term supply contracts in Q4 2021, instead banking on the markets easing where energy purchasing was concerned. “Our managers in the production plants made the right decisions at the right time by entering into long-term contracts,” explains Peter Jägersberger, Managing Partner of the PREIS Group.
Sustained, long-term change taking place in the sourcing of raw materials
While the steel industry has recovered to some extent from the lockdowns of 2021, the progress of the Ukraine conflict is once again clouding the industry’s prospects. Due to supply bottlenecks and Russia’s attack on Ukraine, prices for steel and raw iron can be expected to start spiralling still higher.
“The production businesses in the PREIS Group are focusing on substantial changes in the sourcing of raw materials. The loss of Russian and Ukrainian steel suppliers means a realignment of the supply chains for raw materials and alternative sources of steel and scrap metal are being developed. These will be long-term changes,” says Peter Jägersberger.
When Russian troops marched into Ukraine, the price of raw materials rose almost exponentially. One of the most important raw materials for our foundry in Croatia is scrap metal. Within the space of two weeks, the price shot up from €500 to over €710 a tonne; before the start of the pandemic, it was under €300 a tonne. The following graph shows how the price curve for steel scrap has risen from April 2020 to its current level.
In our production facilities in Slovenia and Bosnia-Herzegovina, steel structures are welded for the energy and transformer markets. Here, the prices for steel and stainless steel have literally exploded.
“In the steel construction division, we are no longer offering fixed prices nowadays – steel materials are quoted with indexing,” reports Erich Weissenböck, Acting Divisional Manager for Transformer Components. The graphs show increases in the cost of steel and stainless steel plate and coils (source: Click here)
High freight costs put the brakes on competition from Asia
Steel components are used in many branches of industry. The pressure of rising production costs is reflected in semi-finished parts, which in turn increases the price of the end product. Uncertainties in the supply chain lead to panic buying and stockpiling, exacerbating the shortage. The war in Ukraine will again massively increase the prevailing bottlenecks triggered by the pandemic. To what extent industry and indeed the private sector will be affected by this is still hard to predict.
Peter Jägersberger summarises the position of the PREIS Group in these unprecedented times as follows: “As a family-run business with flat hierarchies, we have the advantage of being able to react rapidly and flexibly in the volatile times in which we have undeniably found ourselves for the last two years. Our crisis management team has all the resources it needs to be able to devise and implement strategies and actions as rapidly as is necessary, and to overcome all the challenges that this extraordinary period presents. At this point, I would also like to mention with gratitude all our employees, who have performed wonderfully and have made a significant contribution to the successful implementation of all the necessary measures.”
Text: Beatrice Jägersberger