YOUR FORUM FOR PLAY, SPORTS UND LEISURE AREAS
The effects of the significant increases in raw material prices that are now being felt in many areas of commerce and the manual trades have since become an important factor that will influence the economy in coming years. The reason for these – in some cases extreme - price hikes are the global increase in the demand for raw materials, particularly in China and the USA. Responsible in the main is the demand for timber and steel, but it has long been the case that materials such as copper, plastics and lithium are beginning to follow suit in this respect. In the meantime, the price trend has begun to exert major influence on many aspects of the economy, resulting in inflation, production stoppages and the transition to the use of sustainable energy. Certain politicians here in Germany have already begun to propose the imposition of export bans on raw materials recovered in this country, including timber, to help support resident businesses while the repercussions of the coronavirus pandemic will soon also be felt here. The steel industry, on the other hand, has begun to agitate for a removal of the protective tariffs on imported steel. Whether these proposed measures will have the desired effect remains to be seen but a solution definitely needs to be found.
The play equipment and leisure industries are also feeling the effect of high prices and this, of course, has consequences when it comes to the construction of play and exercise facilities. It is thus time to consider the factors associated with the growth in the costs of the basic materials steel and timber that are essential to playground construction and let representatives of the sector explain how they view the situation.
The price of steel
Falling supply capacities, the increasing price of iron ore, the reduction of overproduction and a huge increase in demand since late 2020 have meant that the price of steel has shot up. Between September 2019 and March 2021, the price of steel rose from roughly €500 per tonne to about €800 per tonne. The daily price of alloy steels has surged by more than 15% since the beginning of 2021. In 2020, Germany steel output was the lowest it has been for 10 years. Warehouses are empty while global demand is sky-high. During the pandemic, there has been a departure from the overproduction seen in previous years and many commercial sectors are feeling the pinch when it comes to the supply of steel. In was in 2018 that the EU first imposed protective tariffs on steel imports from abroad in order to protect the European steel industry against cheap imports from Asia and in response to the tariff policy of the Trump administration in the USA. At the time, voices became loud warning of the potential fallout of this approach – and it is now making the situation even more problematic. Many more from all sides are now presently joining the chorus calling for a removal of the measures so that the economy is prepared for a restart when the coronavirus pandemic eventually fades into the background. It is quite clear that the steel production capacity within the EU cannot satisfy the demand here over the short term.
The price of timber
The construction boom seen last year together with forest dieback and fires has contributed to stoking the demand for timber as a building material both here and elsewhere in the world. The prices for sawn timber, in particular, have experienced massive increases. The Chicago Mercantile Exchange has reported that the cost of timber for building rose by 500% within a 12-month period. Last year saw a 40% increase in the export of raw timber from Germany in comparison with the figure for the year before. The quantity exported has tripled since 2015.
Mainly responsible for this is the expanding demand for fir and spruce. These two types of timber constitute more than 80% of Germany’s timber exports. The primary customer is currently the People’s Republic of China that purchases nearly 50% of this timber. At the same time, however, the volume of timber exports in January and February 2021 fell in comparison with that of the same period in 2020.
In addition to the increased demand for German timber abroad, here there was a record amount of timber harvested last year. The amount of timber felled in German forests in 2020 reached quantities not seen since 1990 – but collected damaged and fallen timber represented more than half of the corresponding figure.
The rising demand abroad, the shortage in supply due to tightened constraints on logging and the current construction boom have meant that export prices for raw timber have skyrocketed.
While those working in the forestry industry here have not yet been able to profit from the higher prices, those processing timber are benefitting enormously. In March 2021, the prices for processed timber were some 15% up on those at the same time last year. The largest increase has occurred in the case of sawn conifer timber that is used, among other things, to make battens and for construction purposes. Those able to increase their revenue because of the situation are sawmills, planing mills and wood impregnation businesses. There was a record turnover in this branch in 2020.
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Statements from playground equipment manufacturers on the problem:
David Köhler (CEO of Berliner Seilfabrik GmbH & Co.)
“The to some extent alarming increases in raw material prices, particularly in the case of steel, in which connection we have seen price escalations of more than 90% in recent months, have direct consequences for playground equipment manufacturers.
For a business that uses steel such as us, the current excess demand means that we are unable to avoid higher manufacturing costs. At the same time, there are often longer lead times when it comes to playground construction projects and as a result we need price stability to help with long term planning. From the point of view of the play equipment manufacturers, the steel producers need to start to rebuild their output capacities, reduced as a result of the pandemic-related curb on demand last year, as soon as possible to help overcome the problem with supply. We are also unhappy with the strict trade restrictions on steel imports imposed by the EU. It would desirable if steel could be more readily imported to cover the present shortages. The politicians need to take the appropriate action.”
Steffen Strasser (CEO playparc GmbH)
“The shortages of our most important production resources timber and steel represent challenges when it comes to organisation and logistics. If this situation continues for much longer, there will sooner or later be consequences for pricing policies. We still have on-going contractual agreements with suppliers but these are also dependent on how the circumstances as a whole develop. For example, we source our standard timbers locally, in a circumscribed region of about 150 km. It never occurred to us that we would have to face problems with supply in this connection.
At present, we are very restricted when it comes to defining the period of validity of our prices. This is a real problem in connection with more extensive and long term projects.
Basically, we are at the mercy of economic forces beyond our control. But that the German state forestry commission prefers to sell its produce to China and the USA before covering anything like the demand here seems very strange – particularly when you consider which businesses pay the taxes that actually help finance forestry operations.”
Ulrich Scheffler (CEO Kaiser & Kühne Freizeitgeräte GmbH)
“The alteration we have seen to the global pattern of private spending with a move away from tourism to the purchasing of high quality consumer goods has resulted in a dramatic rise in the demand for timber, steel and other raw materials. The consequence has been a significant increase in raw material prices. The situation the play equipment industry was once used to, in which there were sufficient supplies of our main raw materials, timber and steel, has to a certain extent ceased to exist. The potential outcomes are lengthening of delivery times and even the cancellation of contracts. We at Kaiser & Kühne are also feeling the impact of price rises but despite our high consumption rate, we have been able to avoid increasing our delivery times, particularly in the case of express orders where products are to be supplied within a maximum of two weeks.
Play equipment manufacturers, most of whom are medium-sized enterprises, can exert little influence on the steel production and processing industries. It is the responsibility of government to ensure the available of important raw materials by promoting the expansion of capacities and entering into long term related agreements.”
