Ian Funnell, UK sales and marketing manager for ABB Power Technologies, explains why the soaring costs of raw materials are now reflected in the ex-factory price of many MV and HV products
Surging development in China, reawakening demand in North America, low inventories and production difficulties in some areas have combined to create a sudden, dramatic rise in the global cost of key commodities used in the manufacture of many products, especially transformers, switchgear and cable.
For example, in the period July 2003 to September 2004 the following rises have occurred: Copper up 74% Carbon Steel up 70% Transformer Oil up 40% Electrical Steel up 25% Aluminium up 22%
These increases mean that prices of our strategic commodities have reached their highest levels in decades and analysts expect them to remain high for the foreseeable future.
ABB is committed to delivering high quality products to its customers at cost-effective prices, so we expect to absorb normal fluctuations in raw materials costs without passing them on. However, these cost increases are so immense that no manufacturer can withstand them on a sustainable basis without reflecting them in higher ex-factory prices. So, reluctantly, we have been forced over the past few months to announce general price increases across many of our product ranges.
We are making every effort to offset the effect of further raw material price increases, for example through continually improving productivity and manufacturing efficiency. We are also intensifying our hedging programmes, increasing our sourcing options and consolidating our global supply contracts. New designs and new technology will also have some impact, especially where they can reduce the amount of material required.
ABB, like its competitors, will continuously review product pricing to ensure it remains competitive as commodity costs change.