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Last Updated: Monday, 2 February, 2004, 17:04 GMT
Material costs 'hit steel firms'
Steel worker
Steel production could be cut across the world following a rise in the cost of raw materials, a report has warned.

Trade body UK Steel says firms might be forced to concentrate production on the most profitable products if they cannot pass cost rises on to customers.

An increase in the demand for steel in China had forced the cost of raw materials up by 22% last year, it said.

A UK Steel spokesman said the rise was "unprecedented" and there was a "real risk of steel shortages developing".

'Supplies tight'

The group's chairman, Steve Rutherford, said costs of iron ore, nickel, steel scrap and shipping had all risen in the past few months.

"If we cannot pass on our cost increases along the entire length of the steel supply chain then there is a real risk of supply shortages developing.

So long as customers recognise the laws of supply and demand we don't see there being a problem
ISTC spokesman

"Steelmakers and further processors alike cannot absorb any further squeeze in margins.

"As some Continental producers are already doing, we may be forced to concentrate output on higher margin products only."

Steel manufacturer Corus said it had been forced to increase its prices by between 5% and 8% in the first quarter of the year and expected to announce further increases for the second quarter.

"Raw material supply is getting tight but we have long-term contracts with big suppliers and we are confident that we can secure the raw materials we need to satisfy our customers," media relations manager Mike Hitchcock told BBC News Online.

Most of Corus's customers understood the situation and were looking to pass price increases on to the end user, he said.

Steel workers' union ISTC said that prices would have to go up but did not foresee massive shortages.

"So long as customers recognise the laws of supply and demand, and prices vary accordingly, we don't see there being a problem," an ISTC spokesman added.

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